Finance Your Investment Property with a Self-Directed IRA

Single-family home rentals are one of the most sought-after investments for Self-Directed IRAs. A Self-Directed IRA allows investments in assets like real estate or other alternative investments through a platform like our partner, Rocket Dollar.

Working with Doorvest, you can streamline the process of sourcing, purchasing, renovating, renting, and managing residents all in one platform. While some investors can buy a single-family property outright, many will prefer to pursue creative financing of some kind, regardless if it’s a primary residence or an investment.

Homeowners purchasing a primary residence typically seek a mortgage from a local bank or lender. When looking at an investment property, investors might pursue a specialized lender that better understands the risks and security of their investment decision.

Here is how you can purchase real estate with your Self-Directed IRA.

Understanding Lending With Your IRA

To buy real estate with your IRA, investors must use a Non-Recourse Loan instead of a regular mortgage. “Non-Recourse” refers to the recourse or the bank’s ability to seize assets in a disaster scenario.

Recourse Loans

Recourse loans are when a bank agrees to offer a loan with your personal guarantee, which would be fulfilled (collateralized) by your assets. They could attempt to repossess your home, personal car, assets, or whatever is agreed upon as backup “collateral” to make the bank feel more secure to give you the loan to close it out if something went wrong.

Non-Recourse Loans

Non-Recourse Loans are designed so the lender will only go after assets under that loan, in this case, just the single-family home property, and will not touch any additional personal assets owned by the investor.

Many banks do not offer non-recourse loans as it may leave lenders vulnerable to potential losses if they are not careful in choosing to who they lend. When working with a non-recourse lender, you need to understand that their risk level is higher for a bank lender than a secured recourse loan or conventional personal home mortgage loan.

Other Differences between a Recourse and Non-Recourse Loan

With a Non-Recourse loan:

• Expect different interest rates - Experienced lenders might quote different rates depending on their risk assessment rather than average home mortgage rates.
• Rent Ready properties are better - Lenders have a certain amount of discomfort towards longshots” compared to a well-maintained or recently renovated home in a desirable area. Luckily Doorvest works with almost exclusively recently renovated homes!
• Appraisal - This is often a requirement that provides the lender with much-needed information about the property. In doing so, borrowers are offered a competitive rate.
• Tax Benefits and UBIT - Investing through a Traditional IRA or Roth IRA can shield property from significant tax hits. Investors should be aware of UBIT, or Unrealize Business Income Tax. If you are Self-Employed, you can possibly take advantage of a Solo 401(k) to completely avoid UBIT taxes.
• Timing is imperative! Many times an IRA investor will select a property and schedule a close well before they have a self-directed retirement account open. Not being prepared could jeopardize your perfect investment because the account still needs to be funded before an investment can be made. If you are considering buying property in a self-directed IRA, please do the homework upfront, so the last thing you worry about is getting the funding to close on time.

How to use your Rocket Dollar IRA to finance a Doorvest investment property?

1. Get started with a Doorvest account by sharing your investment objectives, and we will begin matching your criteria with exclusively curated properties.
2. Open a Rocket Dollar account and begin funding the retirement account The sooner you start the Rocket Dollar account, the more time you will have to work out the details of financing. Be sure to use DOORVEST for $50 off.
3. When you have matched with a Doorvest property, bring that property to a non-recourse lender.
   

Resources to Finance and Find Your Investment Property

To find a lender:

You can read Rocket Dollar’s knowledge base article, where you can explore some possible non-recourse lenders. You can also view a detailed webinar from a non-recourse lender.

If you have any retirement questions, send them to info@rocketdollar.com or call 855-762-5383 Monday through Friday 9am to 6pm CST.

To find a property:

You can learn more about Doorvet’s end-to-end real estate investing solution via our FAQ or visit our Resource Hub to get familiar with our markets, real estate trends, webinars, and more.

If you have any additional questions, you can also connect with our Client Partners for a free consultation to see if Doorvest is a good fit for you.