We’ve been talking recently about investing in real estate through your Individual Retirement Account. For years, Empowered Investor has recommended the powerful combination of appreciation and income this asset provides. Add in our innovative refinancing strategy and you have the foundation of an incredible chance to reach financial independence.
Over the past few days, we noticed we may have rushed too quickly past a topic of critical interest, namely, how to finance property purchases if you don’t have enough money in the IRA. Yes, you can use financing when buying real estate through your IRA.
If you decide to leverage your purchase with financing, the property itself will be used as collateral. Since the property is legally the property of your IRA, the debt must be paid from funds inside your IRA, which means you’re going to need some sort of reliable flow of money into the account to service the ongoing payments. This could take the form of income from other property, legal contributions, or even other assets that are contained inside the IRA.
This type of loan is called a non-recourse loan. This simply means that the IRA holder can’t extend credit to the IRA. It might help to think of property investing within an IRA as a sequence of events that play out entirely inside a little bubble world known as the IRA. While this can be a great investment strategy, you do have to play by the rules laid down by the IRA for everything to run smoothly. Sorry. It’s their game, but you can win.
