One way that many Americans are turning to to create an extra source of income is investing in real estate. This can happen in the form of house flipping, or simply buying a piece of property to rent out, but there is a pretty lucrative way of doing it that doesn’t involve dumping a significant portion of your disposable income into doing it. It’s using your IRA.
A self directed individual retirement account allows the owner to invest in whatever she chooses, but the only way for her to be able to buy real estate with her IRA is with an IRA non recourse loan. The terms of the non recourse loan agreement are this: she must put up some real property as collateral for the loan, and the non recourse lender only has recourse to seize this real property in the case that she, the borrower, defaults on the loan.
There are other limits to this type of agreement. Self directed IRA lending does allow the owner flexibility in her investments, but non recourse loan lenders are going to have a few stipulations as to what the funds are used for.
Typically, people purchase real estate that is going to make some money. That’s the point. The financing doesn’t come from the IRA itself — an owner can’t borrow from her IRA — but the IRA itself can borrow.
There are generally three types of property that are purchased with IRA loans from non recourse lenders. One is commercial property, like the type that might be rented out to businesses. The second type is residential property like multi unit houses or apartment buildings. The third is agricultural land with a lease contract that might be used for growing crops or supporting livestock animals.
Do you have any questions about buying real estate with your IRA? Let us know in the comments.
