Who has a Self Directed IRA

Tax, SDIRAs & Cost Segregation
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Who has a Self Directed IRA

John M.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes

I am curious as to the type of real estate or other investments you are investing in and why?  What say ye?

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Account Closed
Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes
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Quote from @John M.:

I am curious as to the type of real estate or other investments you are investing in and why?  What say ye?

I took $1 million in my 401k in 2016/17 and turned it into 7 B+ single family LTR and 1 duplex. We have grossed over $1 million in rent since then and the 8 properties have appreciated tremendously. We do have debt and everyone saying it shouldn’t be done hasn’t done it, or hasn’t done it right anyways. You don’t pay capital gains in a SDIRA and in a high appreciation area it can be a very lucrative business. 
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  • Jacob Barton
    Real Estate Agent · San Antonio, TX · Member since 2022 · 10 posts · 7 votes
    1y

    I currently have one, but I’m working on withdrawing the principal amounts to reinvest it in fractional real estate.

    1Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
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    Quote from @John M.:

    I am curious as to the type of real estate or other investments you are investing in and why?  What say ye?


     SDIRA - Debt funds and those that typically do not have the tax benefits of real estate

    Regular cash - real estate that has great depreciation (but also lower risk such as NNN stuff right now)

    Note this is my personal portfolio I am referring too

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  • Mark F.
    Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes
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    Have had one for about 3 years. I purchased a mortgage note first then invested in a mortgage note fund, which coincidentally the fund operator has posted in this thread. When the fund redeems, I plan on purchasing more mortgage note(s). Biggest problem is putting that $7k contribution limit to work. That’s why a fund has made sense so far. 

    1Reply
  • John M.
    OP
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
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    Please PM me your specific suggestions of companies,funds etc. so I can continue to do some due dilligence.  Personally I have performing note funds ranging from 9-12% annual returns.  Looking into Industrial real estate funds, however I am not a fan of capital calls.  

    0Reply
  • Dan Hawtree
    Member since 2025 · 24 posts · 10 votes
    1y

    Stay away from debt financed real estate investments in a self directed retirement account.

    2Reply
    • Brett SynickyPro Member
      Solo 401k and SDIRA Consultant · Orange, CA · Member since 2013 · 873 posts · 497 votes
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      Quote from @Dan Hawtree:

      Stay away from debt financed real estate investments in a self directed retirement account.

      What makes you suggest that? MAYBE in an IRA but a solo 401k is exempt from UDFI tax on leverage. AND you can still depreciate and write off expenses in an IRA before UDFI is calculated.  
      1Reply
    • Dan Hawtree
      Member since 2025 · 24 posts · 10 votes
      1y

      @Brett Synicky A solo 401k is only exempt to the extent of acquisition debt. Promotors usually leverage out at least once.  You are correct that prescribed expenses reduce UBIT, but for how long? 

      0Reply
    • Brett SynickyPro Member
      Solo 401k and SDIRA Consultant · Orange, CA · Member since 2013 · 873 posts · 497 votes
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      Quote from @Dan Hawtree:

      @Brett Synicky A solo 401k is only exempt to the extent of acquisition debt. Promotors usually leverage out at least once.  You are correct that prescribed expenses reduce UBIT, but for how long? 

      As long as there is debt and the IRA 
      0Reply
  • Sandra Morrison
    Investor · Cincinnati/Fort Thomas, KY · Member since 2015 · 206 posts · 183 votes
    1y

    @John McKee

    I have a debt free house that it bought in 2019 and rents out, some private loans, and a syndication.

    1Reply
  • John M.
    OP
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
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    @Dan Hawtree please elaborate on your specific expereience.

    0Reply
    • Dan Hawtree
      Member since 2025 · 24 posts · 10 votes
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      @John M. Really not so much based on my experience as on IRC. My related experience is I used to draft qualified plan docs. Currently I provide tax compliance services to a large trustee of self directed services.

      Your question has illicited some interesting comments. I find schemes like the self styled "checkbook control LLC" a disaster in the making, as they are non compliant. You simply can not have unfettered access to the quslified funds, period. Of course, the reason they are popular is that someone sold the idea, it would be incredibly convenient. since compliance is presently at a low, the lack of backslap leads people to believe it's ok. Just like the several year period where people took their 401k $ and created an active business. Just like then, you couldn't convince people that the scheme wasn't allowed, Until they lost 50-75% of everything to Treasury.

      Read the comments posted. Several contradict each other. That should not be the case.

      0Reply
    • Jeff S.
      Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
      1y
      Quote from @Dan Hawtree:

      @John M. Really not so much based on my experience as on IRC. My related experience is I used to draft qualified plan docs. Currently I provide tax compliance services to a large trustee of self directed services.

      Your question has illicited some interesting comments. I find schemes like the self styled "checkbook control LLC" a disaster in the making, as they are non compliant. You simply can not have unfettered access to the quslified funds, period. Of course, the reason they are popular is that someone sold the idea, it would be incredibly convenient. since compliance is presently at a low, the lack of backslap leads people to believe it's ok. Just like the several year period where people took their 401k $ and created an active business. Just like then, you couldn't convince people that the scheme wasn't allowed, Until they lost 50-75% of everything to Treasury.

      Read the comments posted. Several contradict each other. That should not be the case.

      Your comment, Dan, makes as much sense as saying, “Don’t invest your self-directed retirement money into debt because you will only have to follow the rules.” Yes, there are rules, but they are remarkably easy to understand and follow.

      We've been lending from our SD 401k plan to local house flippers since 2010. It's been a great business (sorry, Dan, it's a business) with strict rules that are easy to follow, and it has allowed us to retire comfortably. I started investing in an IRA from my very first paycheck from my first job after college. I eventually converted that into an SD IRA, and ultimately into the SD 401 (k) plan we have today, along with my wife.

      @Jonathan Chan wrote:

      “I see a lot of people putting a lot of work and effort into trying to grow an account that they don't have access to for 20+ years.”

      You look somewhat young in your photo, Jonathan. If not having access discourages you from investing in a retirement plan, reread this thread in thirty years and see if you then agree. I don’t know what “a lot of work” means, but all investments require some effort. Lack of access to the money isn’t a good reason to avoid investing in a retirement plan, if that’s what you’re suggesting. Of course, nothing precludes you from investing in a retirement plan as well as separately with your after-tax, personal funds. Enjoying the benefits of tax-free or tax-deferred growth has been the stronger motivation for me.

      3Reply
    • Mike Kirby
      Rental Property Investor · New Braunfels, TX · Member since 2021 · 289 posts · 256 votes
      1y
      Quote from @Jeff S.:
      Quote from @Dan Hawtree:

      @John M. Really not so much based on my experience as on IRC. My related experience is I used to draft qualified plan docs. Currently I provide tax compliance services to a large trustee of self directed services.

      Your question has illicited some interesting comments. I find schemes like the self styled "checkbook control LLC" a disaster in the making, as they are non compliant. You simply can not have unfettered access to the quslified funds, period. Of course, the reason they are popular is that someone sold the idea, it would be incredibly convenient. since compliance is presently at a low, the lack of backslap leads people to believe it's ok. Just like the several year period where people took their 401k $ and created an active business. Just like then, you couldn't convince people that the scheme wasn't allowed, Until they lost 50-75% of everything to Treasury.

      Read the comments posted. Several contradict each other. That should not be the case.

      Your comment, Dan, makes as much sense as saying, “Don’t invest your self-directed retirement money into debt because you will only have to follow the rules.” Yes, there are rules, but they are remarkably easy to understand and follow.

      We've been lending from our SD 401k plan to local house flippers since 2010. It's been a great business (sorry, Dan, it's a business) with strict rules that are easy to follow, and it has allowed us to retire comfortably. I started investing in an IRA from my very first paycheck from my first job after college. I eventually converted that into an SD IRA, and ultimately into the SD 401 (k) plan we have today, along with my wife.

      @Jonathan Chan wrote:

      “I see a lot of people putting a lot of work and effort into trying to grow an account that they don't have access to for 20+ years.”

      You look somewhat young in your photo, Jonathan. If not having access discourages you from investing in a retirement plan, reread this thread in thirty years and see if you then agree. I don’t know what “a lot of work” means, but all investments require some effort. Lack of access to the money isn’t a good reason to avoid investing in a retirement plan, if that’s what you’re suggesting. Of course, nothing precludes you from investing in a retirement plan as well as separately with your after-tax, personal funds. Enjoying the benefits of tax-free or tax-deferred growth has been the stronger motivation for me.

       That’s funny, I’ve had people tell me how “lucky” I am to own all these rental properties. It took me 30 years of living below my means and saving to get where we are! 

      0Reply
    • Jonathan Chan
      Lender · Clermont, FL · Member since 2020 · 168 posts · 87 votes
      1y
      Quote from @Jeff S.:
      Quote from @Dan Hawtree:

      @John M. Really not so much based on my experience as on IRC. My related experience is I used to draft qualified plan docs. Currently I provide tax compliance services to a large trustee of self directed services.

      Your question has illicited some interesting comments. I find schemes like the self styled "checkbook control LLC" a disaster in the making, as they are non compliant. You simply can not have unfettered access to the quslified funds, period. Of course, the reason they are popular is that someone sold the idea, it would be incredibly convenient. since compliance is presently at a low, the lack of backslap leads people to believe it's ok. Just like the several year period where people took their 401k $ and created an active business. Just like then, you couldn't convince people that the scheme wasn't allowed, Until they lost 50-75% of everything to Treasury.

      Read the comments posted. Several contradict each other. That should not be the case.

      Your comment, Dan, makes as much sense as saying, “Don’t invest your self-directed retirement money into debt because you will only have to follow the rules.” Yes, there are rules, but they are remarkably easy to understand and follow.

      We've been lending from our SD 401k plan to local house flippers since 2010. It's been a great business (sorry, Dan, it's a business) with strict rules that are easy to follow, and it has allowed us to retire comfortably. I started investing in an IRA from my very first paycheck from my first job after college. I eventually converted that into an SD IRA, and ultimately into the SD 401 (k) plan we have today, along with my wife.

      @Jonathan Chan wrote:

      “I see a lot of people putting a lot of work and effort into trying to grow an account that they don't have access to for 20+ years.”

      You look somewhat young in your photo, Jonathan. If not having access discourages you from investing in a retirement plan, reread this thread in thirty years and see if you then agree. I don’t know what “a lot of work” means, but all investments require some effort. Lack of access to the money isn’t a good reason to avoid investing in a retirement plan, if that’s what you’re suggesting. Of course, nothing precludes you from investing in a retirement plan as well as separately with your after-tax, personal funds. Enjoying the benefits of tax-free or tax-deferred growth has been the stronger motivation for me.


       I own rental property and I also lend money. I see people working towards buying property in their accounts without the understanding that owning property takes a decent amount of effort. Landlording is not passive. You still have to stay on top of your PMs. I've leveraged my solo 401k to be a private lender or be a LP.  Yes, everything takes work, but some less than others. 

      0Reply
  • Account Closed
    Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes
    1y
    Quote from @John M.:

    I am curious as to the type of real estate or other investments you are investing in and why?  What say ye?

    I took $1 million in my 401k in 2016/17 and turned it into 7 B+ single family LTR and 1 duplex. We have grossed over $1 million in rent since then and the 8 properties have appreciated tremendously. We do have debt and everyone saying it shouldn’t be done hasn’t done it, or hasn’t done it right anyways. You don’t pay capital gains in a SDIRA and in a high appreciation area it can be a very lucrative business. 
    4Reply
  • Savannah Wallace
    Attorney · Las Vegas, NV · Member since 2025 · 69 posts · 91 votes
    1y

    Hi John, 

    I have a lot of clients who utilize SDIRAs for real estate investing and this is generally the advice I provide when they are first starting out.

    I recommend setting up an LLC under your SDIRA—often called a "checkbook control" LLC. This structure offers several advantage including asset protection, privacy (your IRA isn't listed on the deed as the owner) and faster transactions as you don't have to wait for custodian approval. Note that the SDIRA must own 100% of the LLC. You cannot personally own or benefit from the LLC, and all income/expenses must go through the SDIRA.

    If your SDIRA invests in real estate using a loan, be aware that this can generate UBIT as a result of UDFI (Unrelated debt-financed income). If you want to avoid UBIT on leveraged real estate, consider using a Solo 401(k) instead of an IRA, as Solo 401(k)s are generally exempt from UDFI on real estate investments. Or use only non-recourse loans with your SDIRA.

    We know that the IRS has strict rules regarding prohibited transactions and self-dealing. You cannot buy, sell, or lease the property to or from your SDIRA, nor can you personally use the property. You cannot take a salary, directly handle negotiations, or provide services (like repairs or management) to the property. All work must be performed by third parties, and all payments must come from the SDIRA. All income generated by the property must go back into the SDIRA, and all expenses must be paid from the SDIRA

    Good luck with this new investing strategy!

    0Reply
  • John M.
    OP
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
    1y

    What do you guys look for in a debt fund?  Any recommendations?

    0Reply
  • Todd Goedeke
    Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
    1y

    @Account Closed have you paid taxes on the UBTI generated within the IRA due to leverage? Have you ever considered transfers g the IRA to a Solo 401k to avoid UBTI taxes?

    0Reply
    • Account Closed
      Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes
      1y
      Quote from @Todd Goedeke:

      @Account Closed have you paid taxes on the UBTI generated within the IRA due to leverage? Have you ever considered transfers g the IRA to a Solo 401k to avoid UBTI taxes?

      Yes, every year I pay the taxes but I don’t qualify for a Solo 401k, the taxes are not that big of a deal. 
      0Reply
  • Todd Goedeke
    Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
    1y

    @Dan Hawtree your biased comments regarding Checkbook IRA LlCs contradicts evidence from firms who have administered and set up Checkbook IRA LLCs. They have passed IRS audits in flying colors over last 15 years.

    3Reply
    • Dan Hawtree
      Member since 2025 · 24 posts · 10 votes
      1y

      @Todd Goedeke My comments aren't "biased", I have no skin in the game, and unlike some, have no ego on the line. Don't assume something that doesn't get caught in audit is an "approval" or "validation". Finally, I'll guess you are making this up. There just aren't that many of ghese seeing audits that a non specialist like you would be familiar with. 

      Sorry if IRC doesn't match your agenda. For everyone else just remember, rolling through a stop sign 100 times doesn't mean you're not going to get busted on the 101st time

      0Reply
  • John M.
    OP
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
    1y

    what other alternative investments are people investing in when it comes to Self Directed IRA's.

    0Reply
  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 900 votes
    1y

    I have clients who invest in real estate through self-directed IRAs, and it can be a great strategy—especially if you don't have much liquidity outside your retirement funds. But there are special rules to follow. For example, you can't use the property personally, and all income and expenses must flow through the IRA. One major downside is that if the investment is leveraged with a mortgage, the income from the debt-financed portion can be subject to UBIT, which is taxed at a high rate—sometimes up to 40%. So while SDIRAs can work well, they require careful planning.

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  • Jonathan Chan
    Lender · Clermont, FL · Member since 2020 · 168 posts · 87 votes
    1y
    Quote from @John M.:

    I am curious as to the type of real estate or other investments you are investing in and why?  What say ye?


     I do private lending with a 30 year real estate investor. I see a lot of people putting a lot of work and effort into trying to grow an account that they don't have access to for 20+ years. Find something that works that's low maintenance and let it keep going. 

    1Reply
  • Rohullah Sharifi
    Dr · VA · Member since 2025 · 154 posts · 34 votes
    1y

    1. roll over the retirement account funds to self direct IRA

    2. choose self investment management

    3. buy a property for rental

    4. collect rents 

    5. put the rental income back to the Self Directed IRA

    there is tax skipped and once the property pass to heir(s), there is Step up Cost, which means Fair Market Value.

    0Reply
  • Todd Goedeke
    Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
    1y

    @Jonathan Chan Yes,RE investing can be passive.Learn about triple net leasing RE to operating companies or management firms. As lessor they pay for all maintenance, taxes and insurance. There is no management of property managers.

    0Reply
    • Jonathan Chan
      Lender · Clermont, FL · Member since 2020 · 168 posts · 87 votes
      1y
      Quote from @Todd Goedeke:

      @Jonathan Chan Yes,RE investing can be passive.Learn about triple net leasing RE to operating companies or management firms. As lessor they pay for all maintenance, taxes and insurance. There is no management of property managers.


       Yes, I'm familiar with them in concept. I haven't gone that route but it's something I will get into later in my investing career.

      0Reply
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