Bill Wasinski

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Self Directed IRA Investment Analysis

One of the most exciting things I have been involved in is helping people buy investment real estate using their IRA. Most people don’t know that you can do this and also that 1^st bank will finance a loan to your IRA for this purpose. With the right home you can get a good return on your initial investment, and have a tangible and secure asset. For people uncomfortable watching their portfolio go up and down based on the speculation in the stock market this is a great feeling. I have written an example of an IRA purchase below. Please note that the return in this model is just for the 1^st year and it does not factor in appreciation or principle reduction.  The following is an example of a rental property purchase using a Self Directed IRA that that I sold last year:

The property was a 1423 Square Foot Bungalow with 3 bedrooms, 2 baths and an attached 1-car garage with another unattached garage. This property was move-in ready with no maintenance required. It was located in north-central Aurora, close to the new University Hospital and Children’s Hospital.

$155,00.00 Purchase Price
   $54,250.00 Down Payment (35% of Purchase Price provided by the IRA)
 _________
$ 100,750.00 New Mortgage (Made to IRA from First Bank)

This New Mortgage had a 30 year amortization and a fixed interest rate of 3.875% for the first 7 years. After the 7^th year the loan may adjust up or down 1 time yearly based upon the 1 year average interest rate paid on U.S. Treasury Securities. This mortgage has a yearly maximum adjustment of 2% in any year and 5% for the life of the loan.

$ 473.76  Monthly Principal and Interest Payment
      $65.90  Monthly Property Tax Payment
      $69.09  Monthly Homeowner’s Insurance Payment
      _________
    $608.75  Total Monthly Payment

$ 54,250.00 Down Payment
    $4,457.00 Closing Costs   (includes 1^st year insurance and escrow set up)
$ 58,707.00  Total Cash from IRA

$   608.75 Total Monthly Payment x 11 Months =                          $   6,696.25
$   1280.00 Monthly Rents x 10.5 Months*     =                               $13,440.00
    * 1 month vacancy + ½ month leasing fee
                                                                                                                 ___________
Total Positive Cash Flow for 1^st year                                                  $  6,743.75

$6,743.25 Yearly Cash Flow with $58,707.00 invested provides a return on investment of 11.49%
*(some owners will pay the water and trash and some have the tenants pay. Assuming $100/ month for water, sewer and trash the return is 9.44%)
This return on investment does not include the $ 1,813.00 yearly mortgage reduction or any future appreciation of the property.
If $1000.00 is paid monthly toward the mortgage payment, the entire mortgage will be paid off in a little over 12 years.
Mortgage from First Bank is provided to the IRA and requires a short financial statement from the owner of the IRA. The mortgage is non-recourse to the IRA and cannot be collected from the owner of the IRA.

To get more information click here bit.ly/1faZtq4