Self Directed IRA experience?

Question

Will any investors share their experience (good and bad) with using a self directed IRA to jump start their investment business? I am 61. My investment objectives are primarily to build cash flow and equity which can be used for retirement at approximately age 67.

I plan to acquire 25 small multi family doors in the next 6 years. I currently have very limited free cash to make immediate investments. Although I am working to develop investment partnerships to fund deals outside of the IRA, I am considering the SDIRA to invest in an asset I can control and get moving more quickly.

Thanks!

Adam Lacey · Answer

Hi @David L Foreman! I rolled an old retirement fund into a Solo 401k to begin my investment journey a few years back, so very similar to the SDIRA. One thing to consider is that you can not use your retirement account to invest in a deal that you have active control of. It must be a "passive" arrangement. So, you can invest in an apartment syndication as an LP, buy notes, lend people funds to do real estate deals...etc. But you cannot buy a property and manage it yourself, flip houses, JV or be on the GP side.

Having said that, it's been a great way to accelerate the growth. I invest in real estate syndications with the bulk of it and have some crypto in there as well. Feel free to reach out if you have any questions.

Jeffrey Evans · Answer

I recently rolled my roth into a self directed account as well and put it in a bitcoin mining syndication.  Just to diversify some since have stocks in other accounts.

David L Foreman · Answer

Thank You James and Evan for your responses! Both were thought provoking and valuable.

I like Jame's idea of diversifying in into  syndication. Using an SDIRA, I could invest some funds in the stock market and some in syndication.

Evan, the article you referred me to made me realize that my investments would be limited to those the IRA could pay cash for plus cover all expenses -i.e. no leverage. I think it would work out fine if I had enough in there to make the size acquisitions I desire - unfortunately I would be very limited with what I could purchase even with investing my entire IRA.

Again, thanks for your input!

Evan Polaski · Answer

@David L Foreman, I have not personally used my SD IRA to buy rentals, but I have friends that have, so it is (or at least was) possible.  Here is an article from Investopedia that hits on this topic: https://www.investopedia.com/a...

Account Closed · Answer

@David L Foreman  I read this book. It’s a bit dense, but describes it in detail.

The Self-Directed IRA Handbook, Second Edition: An Authoritative Guide Fo... https://www.amazon.com/dp/0692122400/ref=cm_sw_r_sms_api_glt_i_4RTF1795R5FA1119QGTE

William Costello · Answer

@David L Foreman I have not personally but do know colleagues that had success doing it and using his to lend on deals a private money lender. Sounds like you have different options in it which is great. Good luck!

Paul Moore · Answer

@David L Foreman I would refer you to one of BP‘s self-directed IRA experts, @Dmitriy Fomichenko for his advice on this topic. You can also check out the article on this topic at my website. Good luck!

Ed Tamayo · Answer

@David L Foreman

I have an SDIRA account and I have used it for passive real state investments and it has worked wonders for me.

Buy and hold is considered a passive investment  so it will match your goal of having a number of doors.

My more important advice would be to make sure you get a SDIRA with checkbook control. You don’t want to get the custodian of your money have to sign every purchase you make.

That would be crazy but that was offered by some companies when I created my SDIRA.

Charles LeMaire · Answer

David - I invested in one syndication with an SDIRA.  Because of UDFI (a tax on the gains relative to the mortgage on the property), I moved to a Solo401K, which avoids UDFI.  A buy and hold avoids this as you pay it off; syndications usually sell in 5yrs, still holding debt.  BTW, I have not done it, but I have heard of buying a property with/in a SDIRA, but there are complications as it must be arms length (you can't work on it or loan it money).

More money is better, but realize that using a trad IRA/401K, you are turning what would be Cap Gain in non-qualified funds into future earned income in that trad IRA/401k; Roth avoids this.  You did not mention which you had.

If you are holding trad IRA money, I suggest you spreadsheet your future tax issues.  A large IRA at age 72 will force you to have substantial RMD income, which, with growth, will push you up the tax brackets. It is a delicate balance of ACA fees, IRMAA, SS, distributions/conversions, and income.  Once RMDs begins, there is no (cheap) way to stop them.   Taxes are "on-sale" until 2026, so if your situation allows, now is a good time to convert or distribute.  I invest in syndications and I prefer real funds over IRA funds for this;  I target Wall St for the IRA funds.

Also, that SDIRA turned Solo401K I mentioned at the beginning did wonderfully; in the future I have will have to pay regular income tax on all the profits, rather than Cap-Gain.  This is not a glass half full, it is the wrong size glass, as I should have funded it with my money, not IRA money.

Regards,

Charles LeMaire

Michael K Gallagher · Answer

@David L Foreman I do not personally have one but a close friend has had great success using his to lend on real estate deals as a private money lender. He loves it and I think has had a great experience overall.  I would be happy to connect you if you'd like.

Self Directed IRA experience?

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