Is it worth buying real estate through your SDIRA?

[Sameet Koppikar]

HI Everyone...

Just joined BP  - I've been reading the forums for 1 month. Lots of great information. Thanks to everyone who is sharing their knowledge. 

I am debating whether it is worth using my SD IRA to purchase real estate or is it better to use those funds for deed of trust investing or other avenues of investments.

I will not be able to access any rental income from the SD IRA until retirement, and since all gains in the SDIRA are not taxed - I will not be taking any advantage of depreciation or other tax benefits that I would investing with non retirement money.

Is there a pro / con list that can help me decide? Thanks 

[Dmitriy Fomichenko]

Originally posted by @David Dachtera:

@Sameet Koppikar,

Something to consider...

If you do, say, a fix-and-flip using your SDIRA, once the repairs are complete (enough), you can get a new appraisal and refinance to pay back your SDIRA with interest, as well as any other investors. Any excess becomes an advance on your profit when you sell, and the profit is then legally yours as the SDIRA has already been paid back. At that point, you selling and taking a profit is no longer a prohibited transaction.

If you are doing fixer upper in your IRA, most likely you will not be able to use a new appraised value to refinance the property. Most lender will require seasoning, as much as 3 years before they can use new appraised value. Until then the purchase price is used as the value of the property when you want to finance it.

When you sell the property owned by the IRA - the profit is not yours, the profit belongs to an IRA. You can not touch any of that. If you do pull any funds out - it would be considered a distribution, which is a taxable event and if this happens before retirement age penalties would also apply.

In addition that that, flipping activity may be considered an active business, and profit might be subject to Unrelated Business Income Tax.