Investing in real estate is something that many people do to create an additional steady stream of income. Investing with an individual retirement account (IRA) is something that many people do to help prepare for retirement. Though there are pretty strict rules about what a person can and can’t invest in with his or her IRA, there is a way to combine these two efforts, with some restrictions. There are only three types of property that a person can invest in with his or IRA, and there is one major catch.
1. Commercial Property
One type of property that a person can invest in with his or her IRA and a non recourse loan is commercial property. Put simply, commercial property is just property that a person owns for the sole purpose of generating a profit, but all of these on that list really fall into that category. Non recourse commercial loans are used to buy property with a building on it that can be rented out for a business or as office space.
2. Multi-Family Homes
Another type of property that a person can invest in with a non recourse mortgage loan through an IRA is multi-family. This can be a couple of different things. Depending on the size and number of units, this can include apartment buildings or houses divided up into different units — as long as there are multiple dwellings which can generate a source of income through rent.
3. Agricultural Land
The last type of property that most non recourse lenders will lend for is agricultural property. This refers to property (with a lease agreement) that supports crops or livestock. Non recourse commercial loans are also used for this type of property because it is rented with a lease agreement.
The catch here is that whoever uses non recourse IRA loans to purchase income property cannot benefit from the ownership of the property in any way. This means that the owner cannot collect rent from the property, use the property for personal use, or allow any friends and family to use the property either.
Do you have any questions about using self directed IRA to buy real estate? Feel free to ask us in the comments section.
