Leverage Your IRA By Matt Allen Director of IRA Lending

What is a self-directed IRA? “Self-directed IRA” is not a legally defined term, but an industry term for an IRA that allows the account holder to make their own investments. Real estate is one of the options you can choose to invest with your IRA. What is a Self-Directed IRA?

What can you buy in a Self- Directed IRA? Anything except: Collectibles (i.e. stamps, coins, rugs, artwork); Life insurance contracts; Stock in a Sub-Chapter “S” Corp. What can I buy in a Self-Directed IRA?

What is the size of the IRA market? $4,100,000,000,000 in 2008 (Source:Investment Company Institute, Research Fundamentals, February 2009) Self-directed component is only 3-4% but is the fastest growing segment at 25% annual growth versus 8% growth for total IRA market. What is the size of the IRA market?

44% of per capita net worth in U.S. is in real estate, 22% in private equity. (Per 2001 DOL statistics) It is estimated that less than 2% of total IRAs asset value is invested in real estate. Overvie Wealth in the United States

How do I set up a Self-Directed IRA? By rolling over funds from a previous employer- sponsored plans. 401(k) 403(b) Defined Benefit Or rollover a current IRA. How do I set up a Self-Directed IRA?

Custodial/Administrator requirements Annual valuation of IRA Annual report to IRS Books and records State filings Tax returns Overview You need a SDIRA Custodian or Administrator

Borrowing money from it. Selling property to it. Receiving unreasonable compensation for managing it. Using it as security for a loan. Buying property for personal use (present or future) with IRA funds. Overview Prohibited Transactions

The IRA owner The IRA owner's spouse, descendant (e.g., son), or ascendant (e.g., mother) Spouse of a descendant of the IRA holder A fiduciary of the IRA or person providing services to the IRA (e.g., the trustee or custodian) An entity at least 50% of which is owned by a combination of the above A 10% owner, officer, or director or highly compensated employee of such an entity Prohibited Transactions Disqualified Persons:

Some important rules when buying real estate in your IRA Must be rental property You can’t live in the property or rent it out to certain family members All improvements and repairs must come from IRA. Important Rules when Purchasing Real Estate in an IRA

Purchase outright Partner with another IRA or investor Use Leverage (non-recourse loan) Disqualified Persons: 3 Ways to purchase Real Estate in an IRA

What are the advantages of using debt-financing to buy real estate within an IRA? How can I get a non-recourse loan to buy real estate in an IRA? What are the guidelines and parameters for an IRA Non-Recourse loan through NASB? Overview for Debt-Financing

Acquire a NON-RECOURSE LOAN to help leverage your purchase. I don’t have enough money in my Self-Directed IRA to buy a property free and clear. What can I do?

A non-recourse loan is one in which the IRA/SEP account holder is not personally liable for repayment of the loan. The security instruments allow no recourse against the individual account holders or the balances of your IRA/SEP funds. In the event of default/foreclosure the lender can only recover the property and your equity. What is a non-recourse loan?

Pulication 590 (pg states that you “can not use an IRA as security for a loan”. This only leaves one option Most banks don’t offer this type of loan Why a non-recourse loan?

North American Savings Bank, F.S.B. has been providing loans since Based out of Kansas City, Missouri. North American offers a variety of mortgage loans and is the only nationwide non-recourse lender for IRA real estate investments. $1.5 Billion in assets. Publicly traded on NASDAQ under NASB. Who is North American Savings Bank?

All net proceeds go back into the IRA tax free. Leveraging your IRA allows for larger gains in your retirement account! You can diversify your retirement with tangible assets such as real estate. Advantages of Using Debt- Financing with a Self-Directed IRA.

Anyone who has at least 30%-40% of the purchase price vested in an IRA/SEP/LLC has the opportunity to buy rental properties using a non-recourse loan. Who is eligible for a non-recourse loan using their IRA to purchase rental / investment properties?

Single Family Homes % 2-4 Units - 40% Condominiums - 40% Multi-Family (5+ Units) - 40% What are the minimum down payment requirements?

Not Multi-Family

For example “ABC Trust Company, Custodian FBO Joe Smith IRA” Purchase contract, title work, and insurance must be in the name of the IRA.

North American Savings Bank can finance eligible property with non-recourse loans in all 50 states.

If the IRA Account Holder has already set up their IRA/LLC, we can typically close in 30 days. What is the processing timeframe for a non-recourse loan?

NASB offers a 5 year ARM, 15 year fixed, 20 year fixed or 25 Year fixed option. These are both principal and interest payments. ($50,000 minimum loan size) What type of loan programs are available?

The funds are distributed back into the IRA. This allows the account holder the option to purchase other assets within their self-directed IRA. Cash Out Refinance

Single Family Residential Warrantable Condo’s (100% complete, 33% or more sold, and HOA turned over by developer) PUDs/Townhomes Duplexes 4-Plexes Multi-Family (5 or more units) Commercial Property: including retail, warehouses, and office buildings. Property Eligibility

Residential with large acreage Raw land Farms Manufactured or log homes Non-warrantable condos (Most condo conversions and less than 100% complete) Hotels, condo-hotels Co-ops, Timeshares Senior or assisted living facilities Non-franchise restaurants Entertainment properties Mini-storage Ineligible Properties Include:

1. Self-Directed IRA 2. LLC 3. Solo (k) 4. C-Corporation 5. Partnership Properties may be held in a:

The financed property must generate sufficient net operating income to exceed debt service payments by: 20-25% for Single Family Homes 25% 2-4 Unit Properties What are the income requirements for rental property?

Just right!

Gross annual income Rent ($1,400/month x 12)= $16,800 1.Vacancy (7% x GAI) $-1,176 2.Taxes $-2,500 3.Insurance $ Maintenance ($420/unit) $ Management Fee (6% x GAI) $-1, Net Operating Income $10,896 Debt Service Coverage Ratio Example: 125k property

Net Operating income = $10,896 *Annual Principal & Interest $5,799 Based on $75,000 loan at 6% *Net Operating Income/ Annual P&I $10,896/$5,799 = 1.88 DSCR

NASB will quote interest rates on a case by case basis, on the basis of the collateral type and down payment. The following fees and costs apply: 1.1% origination fee to NASB 2.$385 underwriting fee to NASB 3.$310 processing fee to NASB 4.$16 flood certification fee 5.$510-$570 estimated appraisal fee (including rent comps) – due at time of application * Escrows for taxes and hazard insurance are required.

Documentation Required for Loan Approval: 1. Completed loan application/checklist 2. Most recent asset statement verifying IRA assets for purchase and reserves 3. Purchase/sales contract. 4. Acceptable real estate appraisal for the property to be financed. The appraisal must be ordered directly by NASB. 5. Copy of drivers license 6. Documentation from the IRA custodian/administrator needed for closing. 7. Homeowners insurance should read the IRA/LLC as the insured. Documentation and guidelines can be found at

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