How to buy using IRAs
Dear Mr. Priest: You recently wrote about putting real estate in IRAs. I don’t have enough money in my IRA to buy a piece of property that I have had my eye on. Can I use my IRA as a down payment and finance the rest? Dimetry Breckenridge
Dear Dimetry: A host of options exists for someone in your situation who would like to purchase real estate in your IRA, but doesn’t have enough funds to buy it outright. First, you can use a mortgage in conjunction with your IRA funds to buy real estate. It does complicate things, but it can be done. I’m just going to cover some real basics, so if you’re serious about such a transaction, make sure you consult with myself or another expert in this field before you act.If you use a bank loan to purchase property within your IRA, the loan cannot be secured by any property that is an IRA asset.However, if you get a loan that does not use the IRA asset as security, it is possible to use your IRA as a down payment and the loan to purchase the remainder of the property.
An example of this may be to get a personal loan from a friend or family member. Nice friend, huh? Another option would be to finance the remainder with a loan using your personal residence or other non-IRA asset as collateral. It is important to realize that the proportion of income that is attributable to your IRA versus the borrowed portion is treated differently. The financed proportion would be subject to something called Unrelated Debt Financed Income or (UDFI). This is where things get a bit complicated, but with the right guidance, it’s really not that bad.Secondly, another way to purchase a property within your IRA if you can’t afford it would be to pool your IRA with other people who are in your same situation. For example, if a family member or friend also has IRA assets that they would like to use to purchase property, you could add your IRAs together and purchase a property outright without having to rely on financing.
You could potentially use your IRA and non-IRA cash from other investments as well. You could even use your IRA and non-IRA cash from a friend or family member. These are just a few of the options available to you if you are considering purchasing property and your IRA funds are limited. Even if your IRA funds are not limited, you may not want to use all of your IRA assets to purchase property. You’ve heard the term diversification and it applies in this case as well. For information, feel free to contact my office. Happy planning.Bob Priest, MBA, CFP, is a Certified Financial Planner serving clients locally and nationally. He can be reached at (970) 513-7077 or visit his Web site at http://www.BobPriestFinancial.com. All opinions herein are that of the author and not that of the Summit Daily News or its staff. Submit your financial questions to Bob@FinancialCompanies.com.
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