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

Savvy investors are becoming aware that it is possible to buy properties in your retirement accounts. However, many people have no idea that financing those rental properties in your retirement accounts is also possible – and very powerful!
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-and-clear and are generating a total of $1,400 a month in passive monthly income which will supplement your retirement. And, of course, you still don’t have to pay any taxes on the income generated.

Here’s the catch:

When you use leverage in your IRA, both investments will be cash flow neutral for the first 12 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 12?

It is about delayed gratification; if you can wait 12 years with no positive cash flow, you’ll wind up with twice the positive cash flow in years 13-25 (and beyond) and you’ll have two assets that are completely owned free-and-clear (and which will appreciate over time.) You’ve just maximized your ROTH IRA!
As a side note, for any investors 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. You can refinance your current rental property at 50% loan-to-value in order to acquire an additional 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’d like to learn more about maximizing your IRA through leveraging rental properties, the best thing to do is to set up an appointment to speak with the JWB Real Estate Capital team. JWB helps clients build a portfolio of passive income through rental properties located in Jacksonville, FL. Our company provides a full service approach and has all aspects of the investment under one roof including our in-house property management team. You can reach our team directly by calling (904) 677-6777 or by emailing Victoria Smart at victoria.smart@jwbcompanies.com.

Gregg Cohen is the CEO of JWB Real Estate Capital. JWB Real Estate Capital serves clients in 12 countries and 37 states by helping clients build a portfolio of cash-flowing rental properties to create consistent, passive income streams. JWB has been recognized in the Wall Street Journal, New York Times, Bloomberg & Inc Magazine and other national publications. Learn more about JWB at www.JWBRealEstateCapital.com or call or email our office at (904) 677-6777 or info@jwbcompanies.com.

Get JWB’s free guide – How to Make Passive Income Through Rental Property Investing

Disclaimer & Warning:

Consult your tax professional when doing any self-directed investment using leverage for possible Unrelated Debt Financed Income implications and filing requirements. All the information provided in this blog is for educational purposes only and iPlanGroup is not providing accounting, legal or other profession advice. Consult a financial professional before conducting any self-directed investment.