Use our new AI tool to find the right Self-Directed IRA!

IRA Financial Blog

Seller Financing a Self-Directed IRA Real Estate Transaction

Real Estate Videos

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, and 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.

Learn More: The Beginners Guide to Purchasing Real Estate with Retirement Accounts

What is Seller Financing?

As defined by Investopedia, seller financing is a real estate agreement in which the seller handles the mortgage process, instead of a financial institution. Instead of going to a bank to apply for a mortgage and all that entails, a buyer can come to the seller directly. The two parties come to an agreement on all of the particulars, including the sale price, down payment, possible balloon payments, and terms of the sale. This is a great option buyer’s who otherwise might not qualify for a bank loan. It’s great for the seller, since fees are kept to a minimum and the process can be completed quickly.

Of course, seller financing comes with drawbacks as well. The worst of which is finding the right buyer, who will make timely payments. Legal fees could kill your profits if you need to take a buyer to court for nonpayment. It might be best for both sides to have an attorney present at the time of the sale. On the buyer’s side, the big draw is the interest rates. Since banks are competitive with those rates, you’re likely to find a better rate there. However, if you can’t receive the financing by conventional means, the point is moot. Both sides should be aware of both the benefits and risks with seller financing.

Is Seller Financing Allowed with a Self-Directed IRA?

Yes, so long as no IRS rules are broken, you can absolutely use seller financing with your Self-Directed IRA. To reiterate, no disqualified persons should be a part of the process. Therefore, the buyer should not be disqualified! If you have a property owned by your IRA that you wish to sell, seller financing may be considered. The speed at which the transaction can be completed is attractive to many investors. Setting favorable terms is another plus of seller financing. You will want to work with an IRA custodian who is knowledgeable in this area, along with a real estate attorney and financial advisor to make sure this is right for you.

The best part of this is that the interest paid by the buyer goes back to your IRA. Taxes are deferred and you are free to reinvest that money in a new investment. Bear in mind, you want to make sure you are properly diversified. It may not be the best strategy to use seller financing with all your investments. You are better off spreading your IRA savings across multiple investments, and/or multiple properties. As they say, don’t put all your eggs in one basket!

Related: Self Directed IRA for Real Estate

Real Estate Investing: Work with IRA Financial

Of course, we here at IRA Financial believe we’re the best Self-Directed IRA providers around. Our professionals are knowledgeable in all facets of the process. We ensure you remain IRS-compliant and all necessary documents are completed. Further, we’re there for you whenever you need us. Plus, there are never any transaction or account balance fees! Know you are in good hands when you work with IRA Financial.

If you would like to speak with one of our experts about seller financing, please contact us @ 800.472.0646. Also, be sure to check out our YouTube page for tons of interesting videos and podcasts about all things self-directed!


Latest Content

Send Us a Message!