I am looking to better understand how self directed IRA works

14 Replies

I currently own 3 STR properties and am currently applying for a HELOC against one that I own outright. In addition I have heard a couple podcast on BP referencing self directed IRA's. As I look to grow and purchase more properties I plan to bring on investors and wanted to better understand the concept so that I may better explain how to do it and how it works to potential investors as a source for them to draw from. Any info or good links to resources on the matter are greatly appreciated.

Thanks

@Lucas Milburn

Here are some initial high level considerations:

•Potential investors with retirement funds can invest those funds via self directed IRA (or if they are self employed, a self directed 401k).

•The investment could be structured in many ways: secured or unsecured promissory note, joint venture, etc.

@Lucas Milburn I would look into some of the companies that provide them. They often have info on how to do this. If you are familiar with the logistics of setting it up and who is the best company to work with then you have already overcome a roadblock.

Originally posted by @Lucas Milburn :

I currently own 3 STR properties and am currently applying for a HELOC against one that I own outright. In addition I have heard a couple podcast on BP referencing self directed IRA's. As I look to grow and purchase more properties I plan to bring on investors and wanted to better understand the concept so that I may better explain how to do it and how it works to potential investors as a source for them to draw from. Any info or good links to resources on the matter are greatly appreciated.

Thanks

I currently have a self-directed 401(k). My solo401k (George's company - above). They do a a good job of helping you set it up - roughly about $750 with a $125 annual expense. I put my funds with Schwab, into a "checkbook" account. Then you can buy assets under the 401(k) - real estate included. The assets are subject to the same rules and restrictions as stocks purchased in a 401(k).

@Lucas Milburn

Individuals with self directed Individual Retirenent Funds allows individuals to invest those funds in numerous investments tools with one being real estate. To better understand Mat Sorenson is one the renowned experts in this field. He wrote The Self Directed IRA Handbook. He just did a podcast with Mark Kohler. If you go to Refresh Your Wealth Podcast you will here specifics on the concept.

Good Luck.

@Mike Freske

Who is the custodian of your ira? From what I have read finding a good company that knows what they are doing seems to be critical as a misstep if the custodian can force your ira to be disqualified resulting in financial hardship.

Additionally, has anyone used multiple self directed ira’s (meaning from multiple investors) on one property? If so, can you share how you structure the deal? Do you have one ira company that everyone puts their funds into setup for checking account. Does each self directed ira need to be in its own business? If you are not personally putting your self directed ira into the mix and you are running the project/investment with other people’s self directed ira is this an easier approach regarding access to funds?

Thanks for all that take the time to read and reply with their experience.

Lucas

@Mike Freske

Thank you for the positive feedback!

@Lucas Milburn

1. You are correct that working with seasoned professionals is very important.

2. While there are different ways to structure an investment with multiple IRA investors, one way would be to set up a separate LLC for the particular project in which each investor invests. This LLC would need to have its own separate EIN and bank account as well as an operating agreement which defines the roles and responsibilities of the investors, manager(s), etc. Furthermore, the LLC would need to file a 1065 partnership tax return at the federal level (as well as likely forms at the state level) and issue K-1's to each investor. Each investor would have a separate account for their IRA which could be at different self-directed IRA custodians (or have a separate LLC for their respective IRA if the investor wants checkbook control).

3. If you are offering an investment opportunity to others, you will, of course, want to work with an advisor to walk you through any federal or state rules regarding such activity (e.g. securities regulations).