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How does a mortgage work with a self directed IRA that invests in real estate?


The BIDaWIZ Team's Answer:

An account holder must hire a trustee or custodian to hold the IRA assets and be responsible for administering the account and filing required documents with the IRS. IRA owners pay an annual custodial fee and transaction fees, ranging from $50 to a few thousand dollars a year, depending on asset size and activity. They typically charge borrowers a rate of at least 10%. Please note that the loan must be non-recourse. As per IRS regulations, an IRA cannot guarantee a loan or be used as collateral. A non-recourse loan only uses the property for collateral. In the event of default, the lender can collect only the property and cannot go after the IRA itself. In addition, tax is due on profits from leveraged real estate. If your IRA uses debt financing (i.e., obtains a loan) on a real estate investment, a tax will probably be due on profits. This tax is called unrelated business income tax (UBIT).

The BIDaWIZ Team



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