Metairie, LA · Member since 2013 · 13 posts · 2 votes
Ok, I've read that many private lenders lend out of their self directed IRA's to investor's for a return on their money..However I came across this article and now I'm totally confused..Self Directed IRA companies say one thing this article says another...Please click on the link below to view and if anyone can help, it'd be much appreciated..Thank you
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
1) Returns on rentals are often best with leverage. Its hard to get leverage inside an IRA. If you purchase with cash, you're reducing your returns.
2) If you do find a lender (they do exist) it will be at a low LTV and a high rate. And you'll pay UBIT on the debt financed fraction.
3) That "debt financed fraction" can actually increase over time as your basis is reduced by depreciation. At best it decreases slowly until you get quite far along with paying off the loan.
4) You can't work on the property. So the least little thing requires hiring someone to do the work. Some investors work this way, but not all. But with a property in an IRA, you have no choice.
5) When you do hire someone you have to get them a check. With most custodians you have to request a check. So you have to find a contractor who's willing to wait to get the payment. And that check request often involves a fee.
I think making loans out of an IRA is a much, much better choice. No UBIT. No issue with "doing work". At most a single check request then one sent back in when its paid off. Perhaps monthly payments.
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
9y
Stephanie, an additional tax concept to be aware of is the Step Transaction Doctrine, which says that intervening steps layered into a transaction to circumvent tax rules are disregarded. So in your case, the intervening step of funds flowing through aunt's RE company could be disregarded and the transaction would be viewed as being between the IRA and the mortgagor.