IRA Real Estate Lending

Texas Republic Bank offers several financing options for IRA real estate investments. Contact your preferred Texas Republic Bank loan officer to learn more.

IRA Lending

Texas Republic Bank offers loans to self-directed IRAs to finance real estate investments under IRS approved structures. These loans allow IRAs to invest in real estate as an additional and attractive option as part of an integral estate planning strategy. Often such investments qualify for deferral of taxes under IRS regulations. While self-directed IRAs may make investments in a variety of asset types, Texas Republic Bank only makes loans to IRAs to finance real estate investments. If you are interested, contact your preferred Texas Republic Bank loan officer or banking center. You should also contact your attorney, tax or financial advisor, or estate planning consultant. Texas Republic Bank is not a financial advisor and does not provide financial, estate planning, tax or legal advice. Loan types that Texas Republic Bank specializes in for IRA borrowers are: Income producing commercial real estate, residential rental properties and residential buy-fix-sell properties.

BACKGROUND

The IRS permits a self-directed IRA to purchase or hold domestic or foreign real estate. The Self-Directed IRA is used for tax-free or tax-deferred investment of IRA funds in real estate.

According to experts, a self-directed traditional IRA would be afforded the advantage that all gains are tax-deferred until a distribution is taken from the IRA (traditionally no such distributions are required until age 70). In the case of a self-directed ROTH IRA, all gains would be tax free.

These are the arguments tax and investment advisors and estate planners use to motivate investors to use this methodology to structure their investments.

IRA Real Estate Lending

1.1. Real Estate as an IRS approved investment

The IRS has always allowed real estate investments to be held under an IRA. The Employee Retirement Income Security Act of 1974 (ERISA) also allows such investments. The one critical restriction is that the investment not involve a disqualified person.

The following is a list of some, but not all of the permitted investments:

  • Residential Real Estate, Commercial Real Estate, Raw land
  • Foreclosure properties
  • Mortgages
  • Mortgage pools
  • Deeds
  • Tax liens
  • Domestic real estate
  • Foreign real estate
  • Vacation homes
  • Rental units
  • Condos or coops
  • Farm land

1.2. What is a disqualified person for purposes of the prohibited transaction rules?

Under IRS rules, an IRA owner may not invest in property that he/she, a relative, his/her business, already owns. The following are generally regarded as disqualified persons under the IRS rules:

  • The IRA holder or owner,
  • The IRA holder’s spouse,
  • The IRA owner’s ancestors or lineal descendants,
  • Spouses of the IRA holder’s lineal descendants,
  • Investment managers and advisors,
  • Anyone providing services to the plan (IRA), for example the IRA trustee or custodian,
  • Any corporation, partnership, trust, or estate in which the IRA owner has a 50% or greater interest or control

More detailed definitions may be found on the IRS website.

1.3. Prohibited Transactions

It is important to understand what constitutes a prohibited transaction. Because Texas Republic Bank doesn’t provide advice to the customer, an IRA owner should consult with their tax advisors, estate planners and attorneys to avoid any transaction that might create problems or might bring into question the tax-deferred or tax-free status of the IRA. There are two categories of such transactions: Prohibited Investments and Prohibited Transactions.

The Internal Revenue Code defines a Prohibited Transaction to include any direct or indirect:

  • Sale or exchange, or leasing of any property between a plan and a disqualified person,
  • Lending of money or other extension of credit between a plan and a disqualified person,
  • Furnishing of goods, services or facilities between a plan and a disqualified person,
  • Transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan in his/her own interest or for his/her own account,
  • Act by a disqualified person who is a fiduciary whereby he/she deals with the income or assets of a plan in his/her own interest or for his/her own account, or
  • Receipt of any consideration for his/her own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving income or assets of the plan.

It is important to understand that for the purposes of the Internal Revenue Code, the owner and the self-directed IRA are separate entities whose interests are not related.

 

If you are interested in borrowing in your self-directed IRA, contact your preferred TRB loan officer or banking center. You should also contact your attorney, tax or financial advisor, or estate planning consultant. TRB is not a financial advisor and does not provide financial, estate planning, tax or legal advice.