Real Estate in an SDIRA
I’ve been reading Tax-Free Wealth and one idea that stood out was the argument that you generally shouldn’t put tax-sheltered assets into tax-free accounts.
His example is real estate. The reasoning is that real estate already has strong tax advantages like depreciation, expense deductions, and 1031 exchanges. When you place it inside a Self-Directed IRA, many of those benefits no longer matter while you still deal with restrictions like UBIT risk and limited flexibility.
That said, I’ve seen mixed outcomes. Some investors seem to do very well with SDIRAs in real estate or private lending, while others run into complications with taxes or deal structure.
Have you found real estate inside an SDIRA to be worth it, or would you structure things differently if you could do it again?
Most Popular Reply
@Austin Johnson This is a classic "theory vs reality" question.
In theory, and with a large enough portfolio both inside and outside of tax-sheltered plans, there can be real value to choosing which assets go where. Maintaining diversification and maximizing tax benefits across all pools of funds are important strategic decisions.
The simple, reality-based approach is this: "I want to get the highest possible return in my IRA/Solo 401(k) with the least amount of risk". If you know real estate, want to be decoupled from stock market volatility, and can outperform other assets with well selected real estate deals in your tax-sheltered plan, that is a win. Whether that same real estate investment might have had different tax implications in another funding vehicle is {somewhat} irrelevant.
The strategy that @Brett Synicky mentioned, with notes in a plan and real estate with personal funds is quite common.