OPI - Posted by twold

Real Estate Investing Real Estate Financing
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Posted by twold on April 19, 2006 at 12:13:12:

Thank you so much, John, for your thorough and immensely helpful response. I will be awaiting your contact info at Equity Trust.

I will be at the CREOnline Convention this May…Are you going? If so, I hope to meet you there.

Thanks again.

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OPI - Posted by twold

Posted by twold on April 17, 2006 at 17:18:04:

Does anyone know how to use OPI (Other People’s IRA) for financing?

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Re: OPI - Posted by John Corey

Posted by John Corey on April 17, 2006 at 22:45:43:

Sure.

Very carefully if one way to explain.

It is not that different than working with a private investor who has cash outside an IRA.

If the funds are in an IRA the trustee for the IRA has to allow real estate transactions that match what you want to do. You need your investor to approve the deal and then instruct the IRA trustee. Equity Trust is one IRA trustee and there are others who allow RE deals (paper, direct ownership, etc).

What are you really asking?

John Corey

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Re: OPI - Posted by twold

Posted by twold on April 18, 2006 at 22:35:21:

Thanks for your response, John. I want to approach a family member of mine about using his IRA to fund a duplex I found. I’m new at this and don’t have any private lenders of my own…yet. I have already had 4 previous deals fall through because I didn’t have funding and I don’t want to use my own credit again. From your response, I gather that I can let Equity Trust be the trustee for my family member investor, take the IRA funds and put it in a 1st position note to fund the deal? I want to be able to approach my family member with clear instructions/expectations without sounding like an idiot. I’ve never done it before and I guess I’m asking for advice on how to go about this. Thanks in advance for any advice you can provide.

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Re: OPI - Posted by John Corey

Posted by John Corey on April 19, 2006 at 08:34:09:

Twold,

I will not debate the merits of working with a family member.

  1. The IRA needs to be moved to a trustee that is fine with RE. Equity Trust is one I would recommend. The forms needed are on their website. I will send you email with a contact that who can handle things professionally. I suspect anyone there can but I know this one person from a meeting at the CREOnline Convention last year.

  2. Once the funds are moved (can take 3+ weeks) you would agree a deal with the seller for the property. How you write up the offer is your decision so include all the normal things you normally like.

  3. The lender (the family relative’s IRA) would be making the loan. I expect you should use a conservative LTV. How you deal with the down payment is up to the two of you. You might borrow on the value.

  4. The title company’s escrow officer or the lawyer can draw up a note and mortgage (note and trust deed in trust deed states) that shows the amount being loaned, the terms and other such things. The Equity Trust side has details for how the lender’s name needs to read. Assuming that the loan will be in 1st then the title commitment needs to reflect that fact and the title insurance (plus fire insurance) needs to benefit the lender as would be normal.

  5. The payments will be detailed in the note and you should make them exactly as agreed (or early). No messing about because it is a relative. Just make them on time and note that technically the loan is from the IRA and not the relative. The payments go to the IRA and the IRA trustee will keep records of the payments.

There is more to it than this. If you are using a lawyer they will make sure the details line up. An escrow officer really can not offer advice or suggestions.

It would be good if you defined the loan criteria prior to any such loan so that the criteria and terms are clear before getting in the middle of a deal. The problem with a relative is they will loan on deals that make no sense.

John Corey