“Hey Quincy – wife and I met you on IRA Fun Cruise in January. This is a rookie question. Sceanario: we buy an investment property through one of our Roth self directed IRAs. We plan on putting 20K down and getting seller financing for the balance of purchase price. The property is tenant occupied with a Property Manager in place. The property is currently in a land trust and I believe seller wants to use a land contract of sale to sell to our IRA. #1, is that type fo sale to us considered “non-recourse”? #2, from the purchaser perspective, what is your opinion on buying property through a land contract of sale? Thanks so much.”
That is a great question. Whether the debt instrument is a land contract or a deed of trust or a mortgage, it has to be made clear that the only thing the lender can do is take the property back from your IRA. There would need to be language in the land contract (generally just a short paragraph) making this clear. As to your second question, in some states that is a very common way to sell property, while in other states such as Texas it is fairly rare. You would need to get some local advice on that issue, unfortunately.
The only other thing that comes to mind is that this may cause your IRA to owe Unrelated Business Income Tax (UBIT) on the profits from this property. I just finished recording a webinar on this topic with Matt Allen of North American Savings Bank (www.iralending.com) which should be up on the website soon. Also, we have a more extensive webinar that we have recorded on this subject which you can find on our website, as well as written materials. I wasn’t sure how well versed you were with the rules for debt-financed property within an IRA.
Let me know if you have any other questions. Have a great day!