You would have to be living in a cave if you haven't seen or heard about the implosion of the real estate market over the last two years. Ever day in the news it is foreclosure this and a new regulation that. Not to mention although some 401k and IRA account have seen some recover from those late 2008 lows. Don't get your hand caught in the cookie jar the next time the market takes a dip. Now many investors have been waiting on the sidelines not sure what to do with their retirement accounts. While it is easy to reproach the mortgage brokers, the government regulators, and the infamous people on Wall St., focusing on who to blame on the recent financial crisis may cause you to miss one of the countless opportunities out there right now. 

Many people are unaware that they can use their IRA and 401k funds to purchase and invest in real estate. You can roll a portion of your 401k into a Self-Directed IRA and purchase investment properties to rehab and flip or just sit on and rent out. Some markets have been hit by more than 50% and some or even undervalued today by 40%. The best part about using your IRA funds is that you can now obtain and IRA Loan to help you acquire  or rehab your property. Some of the IRA lenders are now lending up to 65% of the value of the property you are looking to purchase. Here are some facts about IRA Lending: 

What is IRA Real Estate Lending?

IRA real estate lending is the process by which you can self-direct IRA or other qualified retirement funds to purchase real estate. This is accomplished by funding the down payment of the purchase price with a qualified account and then obtaining a non-recourse loan to finance the remaining balance of the property's purchase price. Self-directed accounts can even be used to purchase property or buildings in other countries. For more information on opening a self-directed IRA account, please contact  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

In today's market, mutual funds and other Wall Street investments that were deemed safe and fail proof have in recent years shown significant volatility and in most cases dramatic losses. Many people today are moving towards self-directed retirement accounts where they control more closely what their retirement account should invest in. Because IRA's are qualified accounts, they are classified in such a way in which they cannot be accessed without negative tax consequences until much later in life. This can be a problem if you want to purchase investment real estate but simply don't have any non-retirement funds available to do so.

In order for a self-direct IRA to fund a real estate investment, per IRS tax law, a qualified 3rd party administrator must facilitate the purchase of the property which ensures that the individual does not have personal possession or direct access to any qualified accounts. If this rule is not abided by, then the IRS classifies the money as an early withdraw which triggers not only a financial penalty, but also causes the proceeds to be subject to ordinary income tax rates. The 3rd party administrator facilitates the purchase of the asset and title is vested in the name of your IRA or designated account. A property can NOT be purchased in an individual name and afterwards transferred to your self-directed IRA. This is referred to as self-dealing and is strictly prohibited by law. If you purchase real estate within your self-directed IRA, you will not be able to live in the property or own it in your personal name. This also includes your family and anyone else who may be connected with the transaction that could stand to personally benefit from the transaction. Your IRA is only allowed to purchase assets solely for investment purposes and void of any personal gain or benefit prior to taking a distribution from the account.

Are there penalties for misusing IRA loans?

There are fines and penalties for violation of the terms of IRA lending. The 3rd party administrator can also assist you in confirming that a transaction is eligible. Another way to properly plan for correct use of this type of investment is to work with a knowledgeable CPA and financial planner. Prohibited transactions from IRA loans can also lead to complete disqualification of the IRA itself, so it is imperative to be very careful in this matter.

What is the process for setting up an IRA loan?

Once you have found a trusted 3rd party custodian, they will assist you with paperwork and compliance documentation necessary to transfer your qualified accounts to their trust account. Brooklyn Troy works closely with and recommends Pensco Trust Company or The Entrust Group for a 3rd party custodian.  First, a plan is decided upon and approved. Then the funds from your IRA are rolled over into the new self-directed IRA held by the administrator. If you are pooling a number of IRAs, as in perhaps you are joining your IRA with that of your spouse, all these funds will be rolled into a new self-directed IRA. Upon a property being selected to purchase, the custodian will then take appropriate steps in order to help you facilitate purchase that will be title in your IRA.

This subject is still a bit of a mystery to many people. Because it is an alternative investment as oppose to a mutual fund or more widely quantifiable investment, most stock brokers and investment advisors simply don't have experience offering advisement in this area. Self-direct IRA's are an ideal way to take advantage of the present real estate market. Many financial institutions deem this type of non-recourse loan a safe and lucrative because of the large down payment required (typically 35% or more) and the excess account reserves that ensures repayment of their loan.

Remember this is one investment tool to help you diversify your retirement investments. While no one can predict what all the markets will do over the next ten years one thing is for sure there will be ups and downs, and this time you dont want to have all of your eggs in one basket. The only free lunch in investing is with diversification.