How Financing Rental Properties Can Help You Get The Most Out Of Your IRA

By Gregg Cohen, CEO

Recently, I’ve had the opportunity to speak with a large number of our current clients.  In addition to learning more about their client experience and chatting about the Jacksonville real estate market as a whole, I’ve also been using these calls as an opportunity to share a new exciting financing option for those clients who have purchased rental properties in their IRA with us.  
For the right situation, financing properties in your IRA can be equivalent to wealth-building on steroids.  It works for a traditional IRA or a ROTH IRA and the effects over time can be huge for your retirement accounts. 

Here’s how it works:
Let’s say you have $150,000 in your ROTH IRA.  You would like to buy a rental property that costs $120,000.  You are 40 years old and don’t expect to touch that money for another 20-25 years.  You will be able to buy that 1 house without using financing and earn roughly $700 a month in positive cash flow.  That property will appreciate over time.  You won’t have to pay any taxes on the income generated.

Now, let’s say you used the power of leverage in your IRA.  You have $150,000 in your ROTH IRA.  You now can buy 2 rental properties that cost $120,000 each.  You only had to put 50% down on each one!  At the time of retirement in 20-25 years, you now have 2 assets that are owned free-andclear and are generating a total of $1,400 a month in passive monthly income which will supplement your retirement.  Both of those the taxes when you originally contributed to the IRA.  
Here’s the catch:  when you use leverage in your IRA, both investments will be cash flow neutral for the first 10 years.  The loans made to your IRA are designed to be heavily weighted towards an early payment.  Of course, the rates will be much higher than what you would expect from a conventional mortgage as well because there literally are only a small handful of lenders willing to lend to an IRA.

However, you weren’t planning on touching that monthly cash flow in your IRA anyways.  It was just going to stay in your IRA for the next 20-25 years so what does it matter if you don’t earn any positive cash flow for the first 10?  It is about delayed gratification; if you can wait 10 years with no positive cash flow, you’ll wind up with twice the positive cash flow in years 11-25 and you’ll have two assets that are completely owned free-and-clear (and which will appreciate over time.) You’ve just maximized your IRA!

As a side note, for any current clients who already have purchased a rental property in their IRA in the past but weren’t able to finance at that time, you are still in luck.  The financing partner that we work with will allow you to refinance a current property at 50% in order to buy another rental property.  This means there is a good chance you could acquire another rental property in your IRA now without having to use any more of your IRA funds!

If you are interested in maximizing your IRA through leveraging rental properties, the best thing to do is to set up an appointment to speak with our team.

Please contact our Account Executive, Victoria Smart, at (904) 677-6777 or by email at Victoria.Smart@jwbcompanies.com.  You may also view an updated list of Victoria’s available appointments anytime at www.jwbrealestatecapital.com /schedule-appointment.


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