Purchasing a two family (planning to owner occupy 2nd floor) and can pull mtg for approx 60% of home value with rental income basically covering mtg. Was trying to reduce expenses further by hopefully putting IRA monies to use, but did not want to do an early withdrawal.
I was wondering if there was a way to have my IRA purchase an interest in my home so that the monies remain tax deferred and I am guaranteed a 4% rate of return on the monies due to not having to pay a mortgage (plus or minus any change in value of the home).
Any ideas ?
Message edited by: BPANZER1 on 2009-10-29 09:14:02 CDT
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"Unfortunately, Internal Revenue Service regulations will not let you use the real estate owned by your IRA as your residence or vacation home. Nor can your business lease space in your IRA-held property. The underlying premise for any real estate investment purchased with IRA funds is that you can’t have any personal use or benefit of the property. To do so may cost you plenty in taxes and penalties."
You don't mention that it is a Roth (so it probably isn't) but if it were you could withdraw principle with no penalty, right? But that wouldn't seem to give you any tax advantage.
good luck finding a friend wirh both enough cash in their ira to buy a home you want to live in who is also willing to rent to you and also rent from you
The chances of all that is about the same as winning the lotto
1. how many friends/neighbors do you have with enough $$ to buy a house outright within an IRA (financing is almost impossible), and more importantly not just have the $$ but are willing tp spend it on your house?
2. why would your neighbor/friend trust you taking ownership to their house, even if you promise to rent it to them, you can easily raise the rent or kick them out if the relationship sours
3. RE is not a good asset class to hold in an IRA because it already has lots of tax benefits to hold it normally (itemized deductions, cap gains $250/500k deductions after 2 years occupancy etc).
In general, this is often a terrible idea that gets touted as a "best kept secret" by a few financial gurus who make it sound good.
Also, it sounds as if OP doesn't have the money in his IRA to buy the house outright. If an IRA owns a debt-financed property, it'll be subject to Unrelated Business Income Tax. Read about "Unrelated Debt Financed Income" in IRS Pub. 598.
SUCKISSTAPLES said: In general, this is often a terrible idea that gets touted as a "best kept secret" by a few financial gurus who make it sound good.
I think the possibility of buying RE within an IRA is best kept as a secret.
SUCKISSTAPLES said:same problem whether its friends or neighbors..
1. how many friends/neighbors do you have with enough $$ to buy a house outright within an IRA (financing is almost impossible), and more importantly not just have the $$ but are willing tp spend it on your house?
2. why would your neighbor/friend trust you taking ownership to their house, even if you promise to rent it to them, you can easily raise the rent or kick them out if the relationship sours
3. RE is not a good asset class to hold in an IRA because it already has lots of tax benefits to hold it normally (itemized deductions, cap gains $250/500k deductions after 2 years occupancy etc).
In general, this is often a terrible idea that gets touted as a "best kept secret" by a few financial gurus who make it sound good.
so since I've been infected by the BBB virus, let me just go ahead and have some fun expanding this idea.
1. since you buy each other's house, you can agree on the prices to be "affordable"... hmm, somewhat off topic, maybe lower property taxes. 2. since you own each other's house, you each have leverage on the other person to treat the house nicely. you can also raise the rent to the other person if he/she raises the rent on you. all tit for tat. 3. good points; i'm not interested in doing this myself.
frugalpete said: so since I've been infected by the BBB virus, let me just go ahead and have some fun expanding this idea.
1. since you buy each other's house, you can agree on the prices to be "affordable"... hmm, somewhat off topic, maybe lower property taxes. 2. since you own each other's house, you each have leverage on the other person to treat the house nicely. you can also raise the rent to the other person if he/she raises the rent on you. all tit for tat. 3. good points; i'm not interested in doing this myself.
The real TripleB method would be to have 21 different people all doing this and taking possession of 1/20 of eachother's properties. This reduces counter party risk such that if one defaults on the agreement, you only lose 1/20th of your investment. If do it with just one other person, and he defaults then you lose it all. I'd rather diversify my counter party risk on any ridiculous schemes I dream up.
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