Investor · Long Island, NY · Member since 2010 · 99 posts · 23 votes
I have decided to open a self-directed IRA to invest in rental property. I was wondering if anyone could recommend an IRA custodian that I could use. I'd like one that is easy to work with and has reasonable fees. I noticed some have transaction fees while some have flat fees but I'm not sure which is better. It seems like transaction fees can get pretty high if you have multiple leveraged properties in the IRA. I have done some searching on this forum and see some have used UDirect or Equity Trust, are those my best options? Who do you recommend and why?
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
12y
All of these companies will hold your IRA money, disburse it into deals at your request, and administer the paperwork for you. In theory, they will help protect you from making a dumb mistake and violating retirement plan laws. Most of them provide education and can become reliable resources to answer your questions. Some charge by the number of deals you do, some by the total value of your account, and some by both.
After you’ve narrowed down your selection to those with great service and the education you need, you ought to do a spreadsheet trade to determine the lowest cost solution. That is, if you intend to do a few low value deals then pick a company that charges by the value of your account. If you have a lot of money but few deals, you might pick one that charges by the deal, etc.
I personally used IRA Services and can't recommend them more highly. I wouldn't say their education was great, at the time, but their cost and service was outstanding for my needs. (Be careful taking recommendations from those who haven't personally used a particular custodian. Knowing or hearing about someone is not the same as using a specific company with your hard earned cash.)
All of these companies will kill you over checks written, disbursement fees, signatures, wire transfers, and so on. After a while, once you’re comfortable and understand the rules – which are relatively simple, you might consider setting up a self-directed 401k. This is what Tony Spandrio hinted at above (I think).
You don't need an LLC for a SD401k and you really can contribute roughly $50k to these instead of the max $6k or so to an IRA. There are a thousand posts about SD401k's here on BP so if you're interested, do a search. Many here rolled our IRA's into these and no longer need a custodian. I suggest you learn to crawl before you walk, however, Daniel, so using a IRA custodian makes sense at first.
One strong warning I'd give first-off is to rethink using an IRA for rentals. You'll get no benefit of depreciation and can only use the funds on-hand in your account toward the purchase and operations. Borrowing will require a non-recourse loan and can subject what you think is a tax-deferred or tax-free account to annual taxes (called UBIT).
In my opinion, retirement funds are great for notes, tax liens, and other forms of paper (non-depreciable items subject to interest income -- sorry to get technical). There are too many benefits to rental income that you can’t take advantage in a retirement account and way too many drawbacks. Again, do a search here.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
12y
This question gets asked fairly often, so you might search on it. I am thinking of leaving Equity Trust because of slow service at times, and a lack of checkbook control options. I'm considering Broad Financial. Anyone with feedback on them?
Chicago, IL · Member since 2013 · 4 posts · 0 votes
12y
Nexus Direct IRA is worth checking out, too. I've been investigating the same matter and have been the most impressed by them so far (spoke to Todd Grill, the owner). I haven't talked to either QuestIRA or uDirect but will do so now. Thanks!
Loveland, CO · Member since 2013 · 3 posts · 1 vote
12y
Why use a 3rd party custodian? You loose all control of your funds. You pay FEEs, FEEs and more FEEs. You have a ton of paper work to complete. And if you use leverage to buy Real Estate, you will pay taxes on the leverage portion when you sell. Check out the ERISA act of 1974 and if you are a sophisticated investor, you can create a single member LLC, create a Trust and open your own plan that you have control. And based on the IRS, you can contribute up to $50,000/year (if you are under 50). the contributions is based on 25% of your earned income. With a Self Directed IRA, they only allow you to put in $5,500 per year of contributions from earned income.
Real Estate Broker · MA · Member since 2013 · 361 posts · 297 votes
12y
IRA Services Trust (iraservices.com) is pretty decent for holding a single-member LLC and their fees are pretty reasonable, when you're using an LLC to conduct business.
Investor · Long Island, NY · Member since 2010 · 99 posts · 23 votes
12y
@Ellis San Jose Thanks for the recommendations. I noticed both UDirect and QuestIRA are IRA administrators and not custodians. Does it matter if they are administrators? I was looking for custodians but I honestly don't know if that is something that I should be overly concerned with?
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
12y
All of these companies will hold your IRA money, disburse it into deals at your request, and administer the paperwork for you. In theory, they will help protect you from making a dumb mistake and violating retirement plan laws. Most of them provide education and can become reliable resources to answer your questions. Some charge by the number of deals you do, some by the total value of your account, and some by both.
After you’ve narrowed down your selection to those with great service and the education you need, you ought to do a spreadsheet trade to determine the lowest cost solution. That is, if you intend to do a few low value deals then pick a company that charges by the value of your account. If you have a lot of money but few deals, you might pick one that charges by the deal, etc.
I personally used IRA Services and can't recommend them more highly. I wouldn't say their education was great, at the time, but their cost and service was outstanding for my needs. (Be careful taking recommendations from those who haven't personally used a particular custodian. Knowing or hearing about someone is not the same as using a specific company with your hard earned cash.)
All of these companies will kill you over checks written, disbursement fees, signatures, wire transfers, and so on. After a while, once you’re comfortable and understand the rules – which are relatively simple, you might consider setting up a self-directed 401k. This is what Tony Spandrio hinted at above (I think).
You don't need an LLC for a SD401k and you really can contribute roughly $50k to these instead of the max $6k or so to an IRA. There are a thousand posts about SD401k's here on BP so if you're interested, do a search. Many here rolled our IRA's into these and no longer need a custodian. I suggest you learn to crawl before you walk, however, Daniel, so using a IRA custodian makes sense at first.
One strong warning I'd give first-off is to rethink using an IRA for rentals. You'll get no benefit of depreciation and can only use the funds on-hand in your account toward the purchase and operations. Borrowing will require a non-recourse loan and can subject what you think is a tax-deferred or tax-free account to annual taxes (called UBIT).
In my opinion, retirement funds are great for notes, tax liens, and other forms of paper (non-depreciable items subject to interest income -- sorry to get technical). There are too many benefits to rental income that you can’t take advantage in a retirement account and way too many drawbacks. Again, do a search here.
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
12y
I have used UDirect recently, as have the other 2 partners in our 3 way LLC. They were great to work with, reasonable fees, and we have checkbook control, which I think is essential with rentals. We all also used one of the lawyers they recommended at Mark Kohlers firm and were happy with that service as well.
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
12y
Daniel,
I think (I dont have the checkbook here) it was about $1500 for the '3 member' version that we did. I believe their fee for a one member was about $500-$700 or so. I get the feeling they do a LOT of SDIRA work. I checked with the lawyer I use for my 'day job' (I have a contracting business) and he HIGHLY recommend that I use someone that had experience in SDIRAs, and said even if he tried, he couldn't touch it for 'several times that price', due to his unfamiliarity with SDIRAs. I think it was a man named Jarom is who I worked with. He was great about answering a lot of questions before I committed to them. If you search Mark Kohler and SDIRA on youtube you will get a feel for thier knowledge.
@Tony Spandrio I see you are one of the founders of Diverse Retirement Solutions. So you are basically asking me to google your company so they can help me. I believe that is frowned upon on this forum.
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
12y
Daniel,
One other thing as far as costs go...... there is a yearly maintenance fee for each SDIRA (3 in our case since 3 partners) of about $250 or so with UDIrect if I remember right. I have no problem with this since we are essentially paying them almost no fees for services as we have the 'checkbook control'.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
12y
@jon klaus What have you done re Equity Trust now that for us they are slower and much more error prone than ever before? We buy 5 or more rentals into our IRA per year and each transaction is getting more and more painful.
@Jeff S. You are right about not being able to take depreciation advantage, but I disagree re it not making sense to hold rentals in an SD-IRA. I know of no other tactic to double your money in 2 years than to buy cheap, rent for alot and capture paper profit from appreciation than to own the rentals in your IRA. Our current tactic cap rates at 25% not including a close behind appreciation.
I'm not interested in a check book custodian. I like Jon am not happy with Equity Trust's slowness and error rate. It's bad enough that we actually HAVE to use a wholesaler to buy HUD properties for $500 mark up because we could never make the 48hr turn around to get earnest money in and meeting HUD closing date im-movability realities.
Is there anyone here who closes around 5 purchases+ / yr with a non-check book custodian who is fast, accurate and easy to work with? That you like and would recommend?
Investor · North Idaho · Member since 2011 · 332 posts · 107 votes
12y
Daniel Guillermo n
Look into your options for flat annual fees instead of the traditional tiered schedule. You may find some savings from that angle. Transaction fees are never fun but dollar cost average your total fees over the life of the investment to see where the best value is. Also look at the technology that each provider offers. Some are much slower than others. Best of luck!
Investor · Portland, OR · Member since 2011 · 132 posts · 41 votes
12y
I chose a solo 401K as opposed to a self-directed IRA because I wanted complete control and the higher contribution limits a 401K would provide. It's through my (non-real estate) business, but I don't think that would matter (as long as you had a business with no other employees). I chose Sunwest Trust to help me file my paperwork and I was pleased. I use it to invest in alternatives (gold/silver, etc) as well as to loan myself money to buy real estate. It works pretty well, for what I wanted out of it.
Investor · New York City, NY · Member since 2013 · 137 posts · 50 votes
12y
I don't have a company to recommend you but agreed with Jon. I am not happy with Equity Trust's slowness and error rate. I also had to paid penalty when the money for a transaction did not reach its destination on time after they were slow to send it and sent the wrong amount.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
12y
I'm trying to get folks feed back re SD-IRA custodians. We buy 3-5 props per year into Equity Trust and manage 10 or so rentals in our SD-IRA. Equity trust has gotten to be a miserable experience.
I want to move to a custodian that offers:
- check scanning and
- renter direct deposit bank to bank ACH.
Nothing less will do. Once you start doing A LOT of transactions in your SD-IRA the custodians will differentiate themselves quickly. Cheap is not the best if you are killed with time wasting paper work or they are slow or mis-key your deposits etc etc. I'd rather pay MORE for a custodian that made it easy to manage alot of traffic.
A rep from PENSCO said they supported scanned checks. I'm looking for feed back from PENSCO users? And other custodian referals that have my must have 2 features.
They must also make it easy to close on property and be quick to get earnest money to HUD for example. 2 of the 3 new HUD asset managers must get earnest money within 48 hours. Equity trust can't meet this constraint so we pay $500 to a wholesaler to buy HUD properties for us. Yes believe it or not, we pay a wholesaler to buy through because equity trust can move fast enough.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
12y
@Eliezer Davidson I agree with you technically. In advance I'll agree my concerns may be remote but there's reasons why I'll never go with a check book/LLC SD-IRA.
A seldom mentioned disadvantage of the LLC/check book SD-IRA is you can't fund it with annual contributions without closing down the LLC, creating a new one each time you contribute. What a PIA. Then there's the IRS audit risks. When and if the IRS comes in to audit SD-IRA accounts it'll be the check book accounts they'll start on first... A low risk, but it's avoidable by not going that route. But at the problem I'm facing. LOL.
Although its true that you can't contribute to the LLC directly. You do not need to setup a new IRA. The custodian that is holding the LLC can make the contribution for you. So you contribute to the IRA like you would any other. The custodian can then contribute to the same LLC.
Is there really a greater audit risk? I see no reason to believe so. The IRS can audit an individual and if something doesn't smell right they may dig deeper. However if you don't do anything wrong you won't be raising any red flags.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
12y
We are in the middle of a deal with someone that is using their IRA to purchase property, it's Udirect. So far they have been very good about protecting his assets and making sure everything is set up in accordance with his IRA. We just sent the contract for approval today, and hopefully will have it approved within 2-3 days. The lady they are working with is very responsive, giving me her cell number to call at home.
Professional · Portsmouth, NH · Member since 2014 · 175 posts · 108 votes
12y
If your IRA-owned LLC is a single member LLC, you can certainly continue to infuse additional capital. You would make your annual contribution to your IRA, and then direct your custodian to make an additional investment in your LLC.
You can't do this if you have additional disqualified parties invested in the LLC with your IRA.