Taking a CoC 50% plus return in a self-directed IRA?

[Mike Makkar]

Hi BP experts,

Everybody knows the advantages of self-directed IRA's as opposed to the ones we get from Fidelity/JP Morgan Chase/Merrill Lynch etc. Ability to control our own destiny with our own investments, etc. etc.

With a very-well managed buy/hold real-estate strategy, where one buys properties 30% below market and rent for 1.5% of purchase price and doing a cash-out refinance on equity, one can technically do 50% plus to 200% or even more in CoC return.

Question is, how many have done this in a self-directed IRA or a in a CESA (coverdell education IRA)? Some of the limitations of low contributions can be overcome because of the high rate of returns through tax-free methods.

For eg. I buy a house for 100k, 90k with my own cash and 10k with IRA cash. Then I rehab and rent for $1600 a month. Then I do a cash-out refinance and take 90k out (technically 90k of my cash from a 120k appraisal). What's left is the 10k of IRA equity. After expenses, my net income is average of 1000 a month from the 10k self-directed IRA. 120% return on investment, all tax-free?

Isn't this self-directed approach a no-brainer?

Thanks!

[Dmitriy Fomichenko]

Mike, you can't use your own cash when buying a property with your IRA. You either have to use cash from an IRA or non-recourse financing. All of the transactions involving your IRA must be 'arms length', you are not allowed to receive any personal benefits from it nor can you provide any services or do any work on the property yourself.