Using Self Directed IRA as down payment

Hi Folks, I am looking to use my IRA to as a down payment on a MHP. It’s my understanding I can’t use that money and then go for a Bank Loan as well. Is my best option to find a financial friend who is in the same situation. I would invest in their deal and they would invest in mine? thanks Kevin

I’ve actually never heard that, but I liquidated my 401k to invest. Probably about to get criticized for that, but taking the tax hit was worth not dealing with the rules to me. It is my understanding that you have to self-direct the IRA and you will have a custodian. Anyways, I’m not too knowledgeable on that. I will say this through, a lot of IRA’s will allow you to borrow against them. This would allow you to sidestep all of the stupid rules. The basic process is as follows (as I understand it):

  • Your IRA will divest up to 50% of your holdings and give you the loan (might not be a bad idea right now)
  • The loan is generally done at 8-10% for 5-6 years.
  • The principal and interest will be put back into your IRA
  • The money can be used for whatever you want
  • If you fail to pay it back, you will be panelized and taxed as if it was a withdrawal

I think if Brad Simmons is on here he would be able to help you out

Hey CharlesD… I’ve also used some 401k money and paid the taxes and penalties. I justified it as paying a 10% penalty on money that I was going to be paying 10% interest on EVERY year. And I was paying taxes now when I would have paid taxes later anyway. Look at the stock market this week. I wanted to have more control over my money. But this is a business with no retirement plan. I see a lot of owners that are looking to sell their MHPs or Campgrounds and it’s their only retirement money in the world. That’s not a good place to end up.

I had a 10% penalty and a 28% tax… that was still worth it considering where it went. I didn’t even have a second thought about it honestly and would do it again in a heartbeat. Control is how you make money. Also, considering most IRA’s likely lost 10% this week, I probably look like a genius now for doing it. Wonder what the stock market will look like next year around this time… any thoughts?

Secondly, most of our sellers these days are seller financing. Passively investing in the property they know with people they trust seems to be really appealing to them right now.

Trent, most park owner successful to sell their business for a profit know somewhat where to place their money without a 401K and have plenty for retirement. Their is lots of money to be made in the stock market plus there are also boot camps who want to try their luck. Most enterprises need new blood in the system to take care of difficult properties seasoned owners care not to own and their is an over abundance of money flooding into the park business just like what happened to the stock market. I am reminded of a conversation with a person with over 30 years of experience who lost it all during the 07-09 collapse in the mobile home park business–he thought his debt was manageable until he suffered over a 25% loss in the MHP business due to people in the parks falling on difficult times. Remember there is NO section of the economy that is 100% certain or entirely safe, it is only how much stress we can handle WHEN it will happen. After watching over 15 buyers pushing to buy when they lacked equity indicated the pressure to buy even when they did not have a safe margin for difficult times. We have huge equity available waiting for the park business to miss a step as it always has. Trent I believe you witnessed a tremendous number of people wanting properties to buy and some have the resources as per your sale operation in Indiana and like the stock market when the average Joe start buying stocks the bubble is forming and their is only one way it ends–it burst . Presently Wal-Mart is a great buy at under $70 per share and it will go back to over $95 since it is a domineering company and it does not take any management time to own. Almost like the ELAVATION GROUP give them your money to manage the MHP’s and they will give you a ??? return (8-12%) and you just sit back and deposit the money vr. owning parks yourself.

You might want to check out an sdira at a company like Equity Trust Co. You can actually join forces with other account holders there who have cash lying around in a sort of syndication or joint venture scheme. As for mixing a conventional loan with tax deferred money I don’t know that rule.
Jim Allen

Speaking as a FORMER (not licensed, etc) tax attorney, (this is not legal advice, just educational info:)

Swapping equity like that is probably legal, but I would advise against it compared to some of the other suggestions people have made here.

WARNING !! Investing your own IRA in your own property is a violation of IRS regulations. Using LLC’s or other corporate maneuvers does not shield you if you control the property.

A non-taxable entity (like an IRA) that invests in financed (leveraged) invesments triggers a tax called the “unrelated business income tax” or UBIT (or UBTI). This creates a pain in the butt reporting that is hardly worth it. I believe there is an exception if your UBTI is under $1,000 (check with your local tax lawyer to be sure).

The theory of UBIT is that sometimes a non-taxable entity (like a museum) makes a ton of money in a for-profit enterprise (like a gift shop). A “gift shop” may be “related” to the museum’s mission, so it escapes the UBIT but if the museum invested in a leveraged real-estate investment held for profit, the income is certainly unrelated to the museum’s mission (art, education, etc). Therefore a portion of the income that is leveraged (due to debt financing) is taxable to the non-profit (or your IRA, in this case).

Another example: a school has an endowment of $100M that is invested in the stock market. Maybe they get a 2% return on average. The $2M income is UBTI, but it is not taxed unless the school borrows money and leverages the endowment. If the school holds $200M worth of stocks (with $100M of debit) and earns $3.5M after debt service costs, the extra $1.5M is taxed. (Still worth it to the school, though, as they pocket $3M after $0.5M of taxes).


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For me, I wouldn’t cash out tax deferred money to make a deal go. An IRA or an SDIRA, either one, are tax deferred, not non-taxable, my understanding. The tax will be due someday as ordinary income when you take a distribution or when you have to take an RMD or when you convert to a Roth IRA., my understanding again. So get professional advice and help before making a move. As for the requirement to not benefit from your SDIRA, I believe that means that if your SDIRA owns an MHP then you cannot stay there overnight in a vacant POH. Again, get professional advice since you do not want to trigger an audit or any other action by the IRS. Actually, now that I think about it, you can learn a lot by just reading the available literature on their website,, as I recall.
Jim Allen


Your question is one that many IRA holders deal with. Unfortunately you don’t give us enough raw meat to chew on.

You are correct, using a self-directed IRA with a bank loan is verboten. Banks want personal guarantees.
Your IRA can’t personally guarantee anything.

You CAN use your SD-IRA to buy or better yet, option a property. That removes the cloud of personally guaranteeing the debt.

Correct re: tax-deferred versus non-taxable. But treated similarly by the tax code for this purpose.

Also correct re: you can buy a property with IRA money, you just cannot be managing that property or you trigger a “self-dealing” penalty. And you’re not able to leverage the property (investment) with debt unless you pay a penalty (exception for small amounts).