If you’ve decided to buy residential land in Tucson and have determined that a conventional lot loan is not right for you (whether too high a down payment, too many associated costs, too short term, etc.), here are two sources of funds that may be available to help you complete your purchase: owner financing or an IRA/401(k) plan.
Sometimes the owner of a property may agree to finance part of the purchase price and thus act as a bank but with several benefits and differences to you, the buyer. Compared to a bank, these may include a below-market interest rate, a less costly and less stringent approval process, lower down payment, a longer repayment term, and longer amortization period which will lower your periodic payments.
From the seller’s perspective, benefits can include favorable tax consequences and regular cash flow at an above-average rate. This can make the difference between getting the parcel sold or languishing on the market.
But remember, just like the bank loan you must be able to afford the periodic payments and have a realistic plan to pay it off when due.
The International Revenue Service allows qualified retirement plans to invest in Real Estate including vacant land. You must check with your wealth manager to make sure your retirement plans allow this or set up one that will qualify. Once done, consider these points compiled by land broker Tom Brickman:
- Land may not be bought from disqualified persons such as the IRA owner or family members. The IRA beneficiary (you) makes all of the investment decisions. All expenses must be paid out of the account and all income returned to the account.
- Taxes are deferred as with an IRA account. No “indirect” benefits may be derived from the asset. The use of debt is allowed but must be “without recourse.” The debt must be serviced by the IRA and can result in Unrelated Business Income Tax (UBIT).
- You are allowed to buy an undivided interest in a property or purchase along with other people.
- You may not borrow money from it, sell already owned property to it, receive unreasonable compensation for managing it, use it as security for a loan or buy property for personal use.
Interested in purchasing land? Reach out to me, Rick Sacks, by calling 520-918-5477 or emailing firstname.lastname@example.org.