If you’re looking for something besides stocks and bonds to hold in your IRA, consider real estate. Purchase prices are low, in many areas, and the cash from renters can exceed stock dividends or bond interest.
Real estate investing works best when you buy with borrowed money. Although IRAs and debt usually don’t mix well, the IRS permits IRA owners to take "nonrecourse" loans against these accounts. With a nonrecourse loan, the lender can go after the real estate in case of default but can’t claim the borrower’s other assets if the real estate is worth less than the loan balance.
North American Savings Bank and First Western Federal Savings Bank are among the lenders reported to be making such loans. Interest rates now might be 7%-7.5%, on a 30-year fixed-rate loan. Your IRA will have to put at least 30% down: $60,000 on a $200,000 house, for example. Lenders typically want a current appraisal of the property and an indication that rental income will exceed the property’s expenses.
