The secret sauce for making a real estate purchase with your IRA is non-recourse debt. Debt must always be non-recourse debt when your IRA purchases real estate. Say what? Non-recourse means that the only thing on the hook is the property, that’s it, you can’t personally guarantee the loan.

Not being on the hook for anything outside of the collateral sounds pretty good right? Who doesn’t want non-recourse debt, we should all always get non-recourse debt. Oh but wait, its not all about you, is it? The other side of this transaction is the lender and the lender says if he doesn’t have you on the hook for anything then the rules change a bit.

Non-recourse debt is tougher to find then your standard mortgage. The rates and terms are going to vary as well.

• Non-recourse debt will generally cost your IRA a point or two up front
• You’ll have to put down 35-40% generally
• You’ll pay (right now) 7-7.5% rather than 6
• Your term may be 15-20 years rather than 30
• Most of the time you need a pretty solid DSCR (Debt Service Coverage Ratio)

Don’t let these terms put you off. If your retirement account is sitting there flat or creeping along at 6,7, or 8% buying a piece of property with it can turbo-charge your retirement. Even with the costlier loan and mild appreciation over the next 10 years or so a good real estate investment should return substantially more than your standard retirement account a typical stable local investment might yield 15-18% and likely much more, all while secured by real estate

If your money is in a ROTH and therefore your property is in the ROTH you’ll never pay taxes on any cash-flow or gains once you’ve reached retirement, not one red cent, no capital gains when you sell, no income tax on the cash flow, not bad, right?

There are a host of ways you can self-direct your retirement funds and use them for real estate investment. Over the next several months I’ll be highlighting a variety.

Have a questions about what you can or can’t do? Ask it in the box below.