Thread: Using IRA's to purchase properties

I recently put a timber land sale together with some creative financing approach using funds from an IRA account. Fortunately the Buyer took their time in preparing to make the purchase. I had been keeping an eye on some timber property and found a small track of timber land for them. Here is how we put the transaction together. They had an existing IRA account and doing their research they found out that with they could setup a new IRA account for the purpose of purchasing property. They then transferred IRA a portion of their funds to the new account. They still needed additional funds and the remaining balance was paid from a home equity loan. The deed was in the name of the new IRA account. I am told that not all IRA Companies offer this type of financial arrangements for their clients. I am not sure how many of us in the Real Estate business are aware of the use IRA

John,

Unfortunately the way you described the transaction occurring, with the home equity paying a portion of transaction and the IRA owning the parcel, the home equity contribution would most likely void the tax status of the IRA, as most likely the home equity portion would exceed the annual contribution limits allowed for the IRA. The IRA could "borrow" money for the transaction, but the money would need to be non-recourse and from a non-linear familiar relationship to the IRA beneficiary. (in other words you couldn't borrow from your parents, yourself, or children) But, even in the case that it borrowed the money, then the IRA would be subject to UBIT (unrelated business income tax)

Anyway, yes you can buy property in your self-directed IRA, but there are pitfalls, so you need to seek out professionals that can guide you and there are few, but the intermediaries should be able to warn of "improper" transactions.

And of course i am not a lawyer or accountant, so I am not giving advice.

thanks
Scott