There are many alternative ways to invest your retirement funds that most investors are not aware of. The first step is establishing a checkbook IRA. This is very different than giving control of your retirement account to a Wall Street stock trading firm. When you open a checkbook IRA, you assume full responsibility for your investments and have full control over your investments. It dramatically opens up what you are able to invest in. You can invest in commercial businesses, you can invest in residential businesses, you can invest in raw land, you can make private loans, the opportunities are almost endless.
You can invest in a higher value property with greater earning potential by having your IRA take out a non-recourse. A non-recourse loan is made to the IRA (the legal entity, not a person) and it's based exclusively on the value of the property purchased with the debt - not the credit rating of the person named as beneficiary of the IRA.
If the IRA defaults, the lender can seize the collateral, but the lender's recovery is limited to the collateral. If the property value is insufficient to cover the outstanding loan balance, the difference between the value of the collateral and the loan value becomes a loss for the lender. That is one reason lenders require a large down payment for a non-recourse loan - to assure there is plenty of value in the real estate to more than collateralize the loaned amount.
One thing that is important to know about checkbook IRAs is that you cannot comingle funds. Meaning that your personal money cannot be used to pay expenses (loan payments) for property owned by your IRA. You can make all allowed contributions to your IRA and use any money in your IRA to maintain, repair, or improve property owned by your IRA but you can't use your personal finances to do so.
Here are the major issues to keep in mind as you ponder the possibilities of using a non-recourse loan to greatly increase cash flowing into your Checkbook IRA:
1. You are not allowed to personally guarantee a loan for your IRA.
2. It can be difficult finding a bank that allows an IRA to be the debtor without a personal guarantee. Still there are banks that will lend money to your Checkbook IRA and they'll require at least a 30% down payment and that a reserve be kept in the IRA.
3. Be aware your IRA will pay tax on Unrelated Debt Financed Income (UDFI).This is the income and/or capital gains in proportion to the borrowed amount. Otherwise, all money earned by your IRA is tax free.
With the right tax advice and the help of a knowledgeable real estate attorney and tax professional, you are ready to put a true wealth-building strategy in place for your checkbook IRA.
Here are just a few of the many real estate investment opportunities for your checkbook IRA:
· Buy raw land as speculation
· Option contracts
· Construction lots
· Lease to purchase options
· First deed of trust loans
· Sale lease back
· Fix and flip properties
· Tax lien certificates
Over the coming days and weeks, I'll share more information about these different real estate investing strategies.
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