Using Roth IRA For SFH REI, Can't See That It's Worth It ?
I've done some preliminary reading about using my Roth IRA to purchase a SFH REI. My understanding is that the tax benefits, depreciation are not of any benefit to the IRA or to me personally. I do understand that if operating costs exceed income, it could be a taxable event to me.
What are the benefits ??
I may average 6 - 12 % keeping the funds in the IRA in stocks. Is the only benefit the appreciation of the SFH ? In my area appreciation is 2 - 3 % annually. Doesn't seem that on principal, investing my IRA is wise. Am I missing something ???
I am starting a new career as an investor and rehabber. I have $00,000 in a Roth IRA . I would like to use it in the conventional REI model somehow other than just gaining appereciation as noted above.
Other than that, looks like the IRA funds are stuck. To cash out it would cost me 1/3 of my IRA fund. A lot of dough.
How about using my IRA funds to purchase a SFH REI along with additional private investor money (or non recourse bank loan) to make up the full cost of the property, rehab it, cash out refi, and only return to the IRA the original funds. Is this too complicated or possible?
My LLC will do the rehab work. / prop mgt as specified by the IRS. Can create addl LLC entity for the IRA to invest in overall if needed. Just want to find a way to use the IRA for purchase or rehab money.
I would appreciate any experience or input.
Fast Fwd----
I'm just starting out. Since I'm a new business owner ( REI / Rehab) I can most likely only obtain 80% financing on SFH. I prefer to only have 10% or less in the deal or I may run short on cash at some point. Cashing out my IRA will cost me $$ I'll never get back but will give me liquid $$ to use to make deals.
Maybe I should just keep the Roth IRA as it is and have it as an asset listed for the bank or private investors to view so I can obtain second mortgages or + % financing.
Any thoughts?
Thanks a lot.
HappyHome
Think about this, a common enough scenario in today's RE market:
Your SDIRA (Roth) puts 25,000 into a SFR on a sub-to deal, paying past due pmts and fixup, then sells that RE for $75,000...that 75k is put back into the Roth, and NO tax is due on any of it.
Would this not be advantageous to you?
Many people do private lending with thier IRA or Roth. You can get a high rate of return (16% or so) and it is guaranteed with real estate.
The buying and selling is more active, but the rewards are better. The profit is not taxed and I believe there is pretty liberal policy for withdrawl of profit in the Roth.
Not sure that holding a long term rental is the best use of a Roth. Especially if you are getting a low rate of return (6%).
Brenda