I am evaluating if it would make sense for me to move my 401k into a self directed IRA and use it to invest in a turn key property. The one thing that is bothering me is that I feel like I cannot use the profit for quite a while. If I have enough money in my IRA to buy one property with, say 50% leverage and then I am making a 10% ROI. That means that it will take me 10 years until I have enough cash in my IRA to buy the next property. During this 10 years, my cash just lies in the account and does nothing, when I would prefer to invest it right away.

Anyone in the same boat? What would be the smartest thing to do in this situation? I understand that there are other ways to invest like notes or syndicates, but that is not what I am asking about.

Simon

A few thoughts - you can have a self-directed 401K plan - no need to open an IRA. If you're combining IRA cash with a non-recourse loan on a rental property, you're going to have to pay UBIT which will eat into your returns rather dramatically. And - really shaking my head on this one - why would you NOT be looking at notes and other types of investments that could not only be something for your money to do while waiting for their next outing as a down-payment on a rental but could actually speed you to that destination by growing your money pretty predictably?

Signed,

Confused

@Simon Stahl

A self-directed retirement plan is not limited to investing in real estate.  If you were to setup such a plan and start receiving returns from a property investment, you could reinvest that return into anything the IRS rules allow.  That could be another non-traditional asset such as notes, crypto currency, etc., or conventional stocks, bonds and mutual funds.

The advantage of real estate is that it is not purely an appreciation play as so many equities investments are. Real estate may appreciate over time, but if you get into the right deals, it will cash flow each and every month and that is where you really build value in the IRA over time.

Look into making private mortgage lending. Tons of books on the subject. You can loan money to real estate investors in your area for 12-18% return. The loans are usually short term (6 months). This is a great way to build up you IRA.

Sorry for the late answer. Thanks everyone for the suggestions.

@Gail Greenberg I'm wondering, how can I invest relatively small amounts that I get as return from a turnkey into notes? I feel like I still had to wait years until I have enough cash together to buy a note.

@Simon Stahl

You could always pool your IRA funds with other investors when investing in real estate.

@Simon Stahl  How much does your turnkey generate per month and year? You could actually turn it into a note if you wanted to. 

@Simon Stahl - I have purchased 8 TK properties over the past four years with IRA's in a couple different ways. I've used my own IRA and I've partnered with my wifes' IRA. You could also partner with yourself using your IRA and cash or you could partner your IRA, cash and with a friend.

When I quit my FT job, I moved all of my 401K into a SDIRA. While I don't mind using leverage for growth, I don't use leverage for my retirement fund; I want it to be there when it's time to use it. I've been very pleased with this transition as the returns I'm getting are much better than my 401K was performing.

With the 8 properties that I've purchased, the monthly rent coming in ($5K/month) is enough to purchase another house every 12 months and this will continue to reduce as the # of homes get purchased.

Let me know if you have any questions

Question. When you borrow against your IRA and pay interest does that interest go back into the IRA?

@Rich Hupper

You can't borrow agains or from your IRA! IRS rules do not allow that.

Originally posted by @Hank Keller :

@Simon Stahl - You could also partner with yourself using your IRA and cash or you could partner your IRA, cash and with a friend.

Your IRA can partner with your friend, but partnering personally with your IRA will likely result in a prohibited transaction. Take the time to educate yourself well on the topic, I've seen number of IRA's being destroyed because they did such partnership and ended up violating the rules.