Real estate purchased in a self-directed IRA can have a mortgage placed against the property, thus lowering the amount of total cash needed for a purchase. Business investments may include partnerships, joint ventures, and private stock. This can be a platform to fund a start-up business or other for-profit venture that is managed by someone other than the account owner of the IRA.

Real estate and/or real property includes non-traditional assets, such as single-family and multi-unit homes, apartment buildings, co-ops, condominiums, improved or unimproved land (leveraged or unleveraged), commercial property, and more. A Self-Directed IRA gives you the freedom to invest these types of properties. The purchase of real estate through a self-directed retirement plan is a popular investor choice.

If your IRA doesn’t have enough money to pay for the entire purchase, you can finance or leverage any income-producing property. The property is used as the collateral for the loan. Because the property belongs to your IRA, the debt must be repaid from assets within your IRA, whether it’s income from the property, permissible contributions, or other assets in the IRA. All real property is either purchased or sold for your benefit using your Qualified Plan and/or IRA funds.

Financing the Purchase – You may finance or leverage any property you purchase for your plan. The property is the collateral for the loan. As the property is an asset of the plan, repayment of the underlying debt must come from contributions to or income from the property or other assets in the plan. This type of loan is generally referred to as a non-recourse loan because the IRA holder cannot extend credit to an IRA.

Ensuring the Tax-Deferred Status of your Self-Directed IRA – Your entire purchase and/or sale must flow through the tax-free or tax-deferred retirement account. The escrow must be opened by the account, not in the name of the beneficial owner. Vesting is always in the name of the account, such as Horizon Trust Company fbo Your Name and Account Number. The funds in your IRA may be used as good faith deposits, down payments, or purchase money.

When real estate or real property is purchase through your Self-Directed IRA, these properties become assets of your account. In addition:

1. You may not personally own property that you intend to purchase with plan funds and you must ensure that your intended purchase is not a prohibited transaction.
2. Neither you, your spouse, nor your family members (other than siblings) may have owned the property prior to its purchase by your plan.
3. Neither you nor your family members (other than siblings) may live in or lease the property while it’s in your plan.
4. Your business may not lease or be located in or on any part of the property while it’s in your plan.
5. You may receive any property as a distribution from your plan as a retirement benefit. This may be considered a taxable event and Horizon Trust Company strongly suggest that you consult a tax advisor or legal counsel for this type of transaction.

Below are examples of self-dealings in regards to Real Estate purchased through your Self-Directed IRA:

• Having your IRA purchase real estate that you own or use.
• Having your IRA purchase real estate that is owned by a family member of lineal descent, such as your father.
• Issuing a mortgage on a relative’s new residence purchased by a family member who is a disqualified person.
• Granting a child a second mortgage for the down payment on his or her first home.