Buying real estate with a Self-Directed IRA has multiple advantages, including the ability to diversify your portfolio and invest in what you know. Using a Self-Directed IRA to buy real estate can generate tax deferred or tax-free gains. In the case of a Roth, you’re allowed to use leverage to buy real estate. However, the loan must be a non-recourse loan, cannot personally guarantee it. Plus, the use of a non-recourse loan can trigger the UBTI tax and go as high as 37%. But remember, there is a special exemption for 401K plans.
What is Seller Financing?
Seller financing is a real estate agreement in which the seller handles the mortgage process. Instead of a financial institution, it allows for Self-Directed IRA investors to use their IRA accounts to purchase real estate and sell it. However, buyers cannot be a disqualified person. So, if you’re in a real estate transaction and the buyer does not have enough financing, you as the Self-Directed IRA seller can finance the transaction for the buyer. But remember, the buyer cannot be a disqualified person. What’s the advantage? The interest received from the buyer will go back to the IRA without tax and will be tax deferred. Contact us to learn more!