Boost Your Purchasing Power with Debt Leverage

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Real estate IRAs offer the potentially lucrative marriage between a tried and true investment strategy and the tax benefits of a self-directed IRA. However, your IRA, 401(k), or HSA may not have the funds to acquire a property without help. Perhaps your plan has a large pool of capital, but you would rather purchase three properties on behalf of your plan instead of allocating the full cash balance toward one. These scenarios may involve financing your IRA-owned real estate assets. Supplementing an investment with debt may seem counterproductive, but an approach backed by due diligence can still prove fruitful.

Like alternative assets in general, some investors may not realize that self-directed retirement accounts can finance real estate in the same manner as individuals with non-retirement funds. Unlike publicly traded securities, lenders tend to view self-directed assets as genuine business opportunities and may be more likely to finance your pursuits. If you’re interested in leveraged real estate investing, consider the following distinctions between IRA and non-IRA investments:

  • Non-recourse loans: As with any loan, non-recourse financing is available in a range of rates and terms. Collateral is the key difference in this model. Payment of a non-recourse loan may never be guaranteed with personal assets or cash. Instead, the investment property itself would be the collateral. While some banks offer non-recourse loans, peer-to-peer and private lending companies have provided new financing vehicles for self-directed investors.
  • Separate the money: You’re not allowed to make payments toward a non-recourse loan with your personal funds. The same is true of other costs involved with your IRA-owned property (plumbing, maintenance, or miscellaneous repairs). The plan itself must pay these expenses. Accordingly, any income yielded from the property must return to the plan and never to the plan holder.
  • Unrelated business income tax (UBIT): UBIT may apply to any income received from the leveraged portion of a real estate investment. Profits will only be taxable in relation to the debt ratio. For example, if the property is 75% financed and earned $50,000 in a given tax year, your plan may owe taxes on $37,500 at the current trust rate. Other circumstances may dictate the actual UBIT calculation, so please seek help from your accountant or tax professional if needed.

New Direction Trust Company is simplifying the process of adding real estate to individual retirement plans. We have developed a library of educational materials and optimized our myDirection® platform to allow for streamlined transactions, online bill payments, and 24-hour account management. New Direction Trust Company also offers a list of non-recourse lenders, though we do not recommend or endorse any particular one. Feel free to give us a call at 877-742-1270 or send us an e-mail at with any questions about real estate or self-directed IRA investing.