By Anna Platz
Would you like to invest in Denver real estate, but the funds you would allocate towards a purchase are tied up in an IRA? When it comes to an individual retirement account you don’t have to stick to stocks and bonds, it’s entirely possible to diversify your retirement investments with a real estate purchase. And, you can get a loan to help buy your investment.
In order to buy a home with the funds in an IRA it must be a self-directed IRA, controlled by you, rather than a bank, brokerage firm, or other account custodian. Whether you have a traditional IRA through your employer, a Roth IRA, are self employed and have been contributing to a SEP IRA, or have some other type of IRA it’s likely that you can convert it to a self-directed account, allowing you to invest some portion of the funds into real estate.
Non-Recourse IRA Loans
In order to finance the purchase of an investment property with a mortgage loan it must be a non-recourse loan. With a non-recourse loan the lender is prohibited from going after your other assets should the property go into foreclosure and the proceeds of the sale are not sufficient to fully repay the loan. It is common to receive a non-recourse loan for a primary residence, in some states it is even required, but not all banks and mortgage lenders offer the non-recourse option for rental property loans. Luckily there are a handful of Denver mortgage companies who do offer non-recourse IRA loans and are experienced in this area including First Bank.
Because these mortgages represent a greater risk for the lender expect to receive a higher mortgage rate and to make a larger down payment than you would for a mortgage to purchase a primary residence. Investment properties in general have a higher rate of default, and since the lender will not be able to seek recourse in the case of foreclosure they have to protect their interests even more.
Requirements and Restrictions
Like most tax related issues there are a lot of rules and regulations concerning the purchase of real estate with an IRA. For instance, you must be able to cover the cost of the purchase and any costs associated with financing the property, as well as ongoing expenses such as maintenance and monthly mortgage payments from within the IRA. You cannot “co-mingle” IRA and non-IRA funds. You also cannot use the property yourself until after you retire and begin taking
distributions from the retirement account. The penalties for disregarding these (and the many additional) regulations can be severe, and extremely costly, making consultation with a knowledgable attorney, accountant, and/or financial adviser essential.
While it’s important to understand that like any investment a real estate purchase involves risk, purchasing a rental property with your IRA can be an excellent way to diversify your retirement savings, and take advantage of today’s low mortgage rates and affordable real estate.
About the author:
Anna Platz is a home financing expert based in Wilmington, North Carolina. She works as the personal finance editor for ForTheBestRate.com, a consumer directed website focusing on mortgage rates, insurance, and finance.
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