You are here: DIME Home > Investing > Self Directed IRA Case Studies

Self Directed IRA Case Studies

The greatest benefit of a self directed IRA is that in addition to offering complete control for your retirement account, it also lets you invest in something you understand and enjoy.

Author: Islandview
Date: Sep 12, 2011 - 12:14:34 PM

Printer friendly page

The greatest benefit of a self directed IRA is that in addition to offering complete control for your retirement account, it also lets you invest in something you understand and enjoy. Here are two case studies that illustrate the benefits of a real estate IRAs:

 

Case study 1: Using non recourse lending for high returns on a self directed IRA real estate investment

 

A self directed IRA can be used to purchase or rehab real estate and invest in other assets. With real estate IRAs, it is also possible to get non recourse funding from lenders so that you can leverage your IRA funds. Non recourse lending means that the lender has a hold only over the asset funded, not the borrower. Once you’ve located a company specializing in IRA lending, be prepared to make a larger than average down payment as this offsets the risk for the non recourse lender.

 

John wanted to invest in real estate. Since he did not have enough funds in his IRA, he decided to go seek non recourse financing. He identified the property and found it needed repairs. He submitted his self directed IRA statements to the lender along with a credit application and a itemized budget of proposed repairs. His self-directed IRA was opened and funded. He then put the property under contract. He wanted to rehab the property and sell it quickly for a profit.

 

The proposed purchase price is $50,000 and total amount of repairs required is $30,000. The market value of the property once repaired is around $ 110,000. With $80,000 for a total cost, John would need to put down 50% or $40,000 as a down payment for the purchase and repairs. Once the property is resold, the $40,000 loan is paid off and the profit from the resale is put back into his self directed IRA. Now when he buys his next home, he’ll have more money to invest with.

 

With the total loan amount at $40,000 and a 50% down payment, John’s self directed IRA had to come up with $40,000. The balance amount was a non recourse loan, allowing John to leverage his IRA funds resulting in a much larger tax free return on his investment than he could have expected from his traditional IRA.

 

One thing to remember here is that you should discuss the UBIT tax implications with an advisor on capital gains from the property.

 

Case study 2: Diversifying your real estate IRA investment portfolio with non recourse financing

The IRS mandates that real estate purchases that use leverage with a self directed IRA can only be facilitated through non recourse lending. This is an advantage since any loan payment default will only require the property as collateral without any liability to the IRA or the individual. For investors who prefer to buy property with their self directed IRA but do not have the funds in the IRA, a non recourse loan is the best way to go. The borrower does not personally guarantee the loan. However, the property must be saleable and there are lenders who would finance up to sixty five percent of the cost of the property.

Ann is an investor who has about $80,000 in her self directed 401K. She would like to invest this money profitably over more than one property. As she explores her investment options, she identifies the ideal property on the market for $110,000. Knowing it was a good deal that would cash flow, Ann decides to invest. She put up $38,500 from her 401K funds and finds a non recourse lender to put up the $71,500 to finalize the purchase. Ann used the remaining funds in her account to invest in two more properties for higher returns, thus diversifying her portfolio and reducing her risk in case of any unforeseen market slumps. Thus, with her $80,000, Ann has three properties from where the rental income goes into her self directed retirement account.

With a self directed IRA, real estate is among the most common investments and opting for non recourse financing can help make possible purchases that would not otherwise be viable.

Director of Business Development

http://www.islandviewmortgage.com/

View all articles by Islandview

Link to this article:

Code to copy:

<a href="http://www.dime-co.com/investing/Self-Directed-IRA-Case-Studies.shtml">Self Directed IRA Case Studies</a>

---

Search for articles: Advanced Search

Recommended Associates

Latest Articles in All Categories

Putting Up a Small Commercial Printing Business

So You Might Be Unemployed And Desire To Become A San Francisco Real Estate Investor Now

Meditation and Mindfulness: Dealing With Emotion

CPA Websites: Five Essential Ideas for Composing Convincing Articles

Set Goals In Order to Come Up With Your Action Plan

Is the Air in Your Home Safe to Breathe?

Coarse Fishing Tackle Review: The JW Young 13ft Trotter Rod

Section 1031 Exchanges For San Diego Real Estate Investors

Phoenix Real Estate Investing For Highest Possible Earnings

Legendary are the Volk Racing TE37 Wheels

Developing the Next Generation Wall Station (ChaseDesk™) for Healthcare - A Case Study

What are step down transformers?

Introducing Sharehype, the Revolutionary Tool for Online Marketers

Rewards To Shopping For Austin Real Estate On The Web

Hydroponics for Beginners

Do you write?

Would you like submit your articles and have them approved on a priority status? Find out more about how you can become a Priority author for pennies a day! Click here.

News Feed

Dime-co.com Home

Business (9328)

Computers & The Internet (5740)

Entertainment (1348)

Family (958)

Finance (1963)

Health (4246)

Home and Living (6670)

Marketing (6113)

Shopping & Product Reviews (2624)

Sports (694)

Travel and Vacations (1689)

Video Articles (1)

Editors Pick (1)