The SDIRA (Self Directed IRA) can be an extremely important tool for filling the void in meeting commercial capital needs. The credit crisis has made it very difficult to obtain funding using the traditional methods of bank financing. This has created a scenario in which it is necessary to find alternative funding sources.
The shrinking of investment capital of individuals has created a situation in which investors may find themselves scrambling for the down payment necessary to fund the purchase of a commercial property. The Self Directed Retirement Fund can serve a big role in filling that gap.. The SDIRA owner can use his retirement funds for the equity portion of his purchase. Furthermore, for those who have created a checkbook SDIRA, as the custodian of their own retirement account, they can write the check themselves for the purchase.
An investor who does not have either the personal or retirement funds available for the equity portion of the purchase, can always find an investor to partner with on the transaction. Again in this situation, the funding investor can use either personal funds or retirement funds for the equity portion of the investment. As of year end 2004, there was 13.3 trillion dollars in retirement accounts. Much of the money in those retirement accounts although available for SDIRA remains in the custodial hands of banks and brokerage firms thereby losing the ability to participate in these types of investments.
A surprising number people are unaware that these funds can be used for this purpose. An even larger number of people are unaware of the fact that they can be the custodian of their retirement accounts. In addition, when looking for a person to partner with, by being able to use their retirement funds will certainly can expand the market of those investors.
We just discussed the use of your SDIRA to fund the equity portion of your real estate purchase. The SDIRA can also be used to provide the debt portion of a transaction. We know that it is a lot tougher in today’s environment to obtain bank financing for the purchase of commercial real estate. You can use these retirement plans to fund the debt portion of a transaction. You can be the mortgagee on your investment. You can do this by using your SDIRA funds as the lender for the purchase of the property. When you use your own SDIRA you are being the bank. It is extremely powerful to be able to collect the positive cash flow from the property and also have the mortgage payments go into your retirement account instead of to a bank. Think about it. You are getting paid not only based on the equity you have in the property but also receiving money in your retirement account that would be going to the bank.
You can also use an investor’s SDIRA for the debt portion of your real estate purchase. In this case, it is this investor that would be the mortgagee and receiving the “banking” benefits. However, among the benefits to you is the fact that you should have more flexibility in the structuring of the note and you most probably will not have to meet the tedious requirements of obtaining a bank loan to get the commercial capital you need.