Does anyone have advice on using a SD IRA to invest in Real Estate?
I have been considering this for years. Just don’t want to make any mistakes.
Hello Jason. Just tell your broker what you want to do and they will walk you through it. Usually this is all done by a host and as long as the money goes back where it came from you should be safe. Again, talk with both your CPA and FA (if you have one) before doing so. It is an awesome strategy and if done correctly you can really accelerate the growth of those accounts versus the traditional stock only approach.
A self-directed IRA can be a great way to diversify your tax-sheltered savings into real estate.
A special IRA will need to be established with a firm that handles documentation of an IRA's investment in non-traditional assets. The mainstream firms just don't have the processing model in place.
You can work with a custodian that will act as processor and record the investments you direct them to make, or use what is referred to as a Checkbook IRA or (if self-employed) a Solo 401(k) to have more direct control over the transactional layer. For direct ownership of real property - which often is time sensitive and generates a lot of transactions - the latter model is generally much more effective and efficient. Many providers of such services are active here on BP.
The key think to keep in mind is that the IRA owns the real estate, not you. Everything needs to be done entirely at arm's length and exclusively for the benefit of the IRA. You can administer the investments, but cannot benefit now by receiving income or inject benefit into the IRA through services like performing work on the property.
If you get a good rental property in your IRA, for example, your IRA has a stable asset securing the principal, with consistent income over time and the potential for appreciation. You can also use leverage in the form of non-recourse loans to accelerate the growth of your IRA.
If you understand real estate, you can definitely out-perform conventional financial product investing with one of these vehicles.
A self-directed IRA can be a great way to invest retirement funds into alternative assets. If you are self-employed, a Solo 401k might work even better for you.
Compared to an IRA, Solo 401k contribution limits are much higher and there is no custodial requirement as you can be your own trustee. This means you don't need the additional expense and administration of an LLC to have checkbook control. Checkbook control can be a useful feature for more easily and quickly making transactions and avoiding custodial fees.
Other Solo 401k benefits include the ability to take participant loans from the plan, a built in-Roth component, and spousal participation.
It's good that you want to be careful not to make mistakes. With either a self-directed IRA or 401k, there are prohibited transaction rules you must follow. A good provider can be very useful in helping you understand these rules.
Appreciate the quick response. Do you know anything about Quest in Austin, TX?
The claim to specialize in SD IRA's
@Jason Flippo look at their website. I have borrowed money from several friends who have their money there. Everything seems to work pretty smooth every time. I have done six or seven transactions there. They charge some fees, but as the borrower, I pay them when borrowing their money.
They have all kinds of facebook live meetings, lots of live meetings. At least every month there is a meeting in Austin. Lots of articles also, just like here on BP.
Quest could provide you with a self-directed IRA account, but as a custodian, they will not be able to create the LLC needed for checkbook control (if you are interested in this option). Also note that some custodians do not allow for checkbook control at all.
Hi, Jason. You may find this article helpful: