I am looking into the possibility of transferring funds from my existing Roth IRA (at a discount brokerage firm) to a self-directed Roth IRA in order to purchase Cacao Farm parcels in Belize as part of the Belize Cacao Consortium's investment opportunity (similar to the coffee farm parcel opportunity in Panama via International Coffee Farms - same leadership team, slightly different business model).
In the process, I'm looking to explore different self-directed providers to see what this would look like from each provider and any restrictions that might be in place. Ideally, I would complete the transfer, make the purchases one time, and it would be a long term buy-and-hold with annual distributions from the investment back into the Roth IRA.
I'm looking for something that's easier to set up, has low fees, and has the ability for me to make additional transfers/purchases in the future if I choose to do so (which I'm assuming they all would). One other major consideration is the possible UBTI that could come into play due to the multiple income streams (retail chocolate shop, farming on the parcels, wholesaling beans with other farmers, etc.). My CPA is currently researching this, but any insight is appreciated along with any recommendations/feedback for self-directed custodians.
This is something most self-directed custodian/administrators should allow. We have clients with international investments such as this. You will need to consider some factors, can they provide a Fair Market Value (FMV) annually? Some international fees are higher such as wires. I would be happy to discuss the details and provide you with our fees privatly.
In addition, you may need a Belize entity or a USA LLC as Belize does not recognize an IRA as an entity to purchase land. There are attorneys that are familiar with these transactions and I would get a hold of one of them. In addition look for other investors that have used there IRAs to buy property in Belize. Don't reinvent the wheel -talk to those who have done it. There are articles out there on the subject. I'm not sure I am allowed to disclose the article in this forum but PM if you can't find it on google. The entity paperwork may have to be written in English and Spanish. UBIT may be an issue but being foreign doesn't really complicate that matter.
@Mark S. Can you clarify if the purchase you are looking to make is in real estate or are you investing in shares of a business that owns the real estate? The two are quite different, I want to make sure we are giving you correct information.
We allow our clients to purchase and hold international real estate in their IRAs, however, we do require them to do so using a Checkbook IRA structure. You create an LLC for the IRA to invest in. The LLC then purchases the real estate. We require this structure because, as it sounds like you know, every country has different rules that pertain to how an American can purchase real estate. The LLC structure puts the responsibility on the account holder to understand those rules. We do have a multitude of clients successfully using this strategy.
If you are investing in a business, and your IRA will not be on title as an owner of the real estate but a shareholder in the company, the transaction is a bit more straightforward. This can be accomplished without the use of the Checkbook IRA, your IRA can purchase shares directly and receive dividends directly into your account.
UBTI is quite different depending on the strategy.
You will need a IRA owned LLC to accomplish what you wish to accomplish. One of my clients used his IRA to purchase organic mango farm in Panama, here is an article about how they did it:
See the following to learn more about UBIT.
Based on fee schedules from different websites/companies I've researched thus far, uDirect seems to be the least expensive. In my case, I'm planning to simply make a one-time purchase and buy-and-hold agricultural real estate investments. I don't anticipate needing numerous transactions as I might for note investing or rental property inside the account.
Their website is vague and but it appears as though uDirect uses the IRA LLC structure. Can anyone verify this? Is there a custodian option where I don't have to create an IRA-owned LLC and can just have the custodian be responsible for sending the funds? I'm thinking this may make more sense for my situation.
UDirect is actually a 3rd party administrator. This means they provide paperwork and customer service as the front end, and contract with a registered trust company that acts as the actual custodian of the IRA (American Estate & Trust in this case). UDirect offers both basic custodial services and the IRA LLC model.
International real estate is a specialized asset. Do not rely on web-published fee schedules to gauge your costs. Get on the phone and talk with providers. You will find they typically have many different and additional fees for dealing with international transactions, which are generally much more complex in nature.
Thanks, @Brian Eastman . The more I continue to learn about this, the more appealing it seems to be to NOT go the self-directed route, purchase with non-retirement funds to eliminate hassles/fees/etc and continue with more traditional investments inside my (non-self directed) retirement plan. If this were my only option to invest, maybe I'd feel differently, but it's not.
@Mark S. my two partners and I have both SDIRAs and SOLO401Ks that we use for investing.
Originally we used UDirect for the SDIRAs since they were the first one that seemed to be a good fit service and cost wise and we were in somewhat of a hurry. I had just found Bigger Pockets and the whole world of investing with our retirement funds. We did not yet know about the whole SOLO401K thing yet or would have just gone that route from the get go. Things went OK with them and we still hold our SDIRAs there. They use a 'third party custodian' (I think that is the right term) which if I remember right is American Estate and Trust.
Fast forward a couple of years and a WHOLE lot of learning and we were ready to invest in some more places. At that point, I talked to several of the SOLO401K Plan Providers here on BP (Look at their 'tag lines' when they post - they are not supposed to toot their own horn') and ended up choosing @Dmitriy Fomichenko from Sense Financial and have been very happy with the service from him and his staff. I feel there is much more 'helpful input' from them.
My recommendation would be to talk to some of the providers who contribute here on BP (several in this thread already) and see how they could fit your needs. Just in talking to them before we set up the SOLO401Ks, I dont think you would every be likely to get the same level of benefit from one on the 'big boys' out there. That guidance, in my opinion, WAY more than makes up for what *might* be a slightly different cost. An example would be Dmitriy jumping in with a link about someone doing almost exactly what you are thinking of.
Out of curiosity, what made you choose a 'foreign investment' like that instead of a more traditional one? I took at look at their site but did not see much as far as historic returns etc....
Good Luck, Dan Dietz
@Mark S. in regards to your comment to @Brian Eastman about it being a lot of work to set up - It IS originally, but once they get going most things are very smooth. One of our original partners sold their share of the 3 way LLC we all invested in to a new partner and it went just as smooth as if it were NOT in a SDIRA account.
We too invest both inside of retirement account and conventionally. A good portion of our assets were ALREADY in retirement accounts, so it came down to how to best make use of those funds that were already there.
The way I look at it is if we were to have the funds in traditional stocks, ETFs, etc.... that MAYBE we could average 10-12% over time. That is a BIG maybe :-) We all enjoy that part of investing too, but it can be time consuming to manage what you are invested in there also.
On the buy and hold rentals that we have in the retirement funds we should be able to average a conservative 16-20% return over time when factoring in cash flow, loan pay-down and appreciation. When looking at say a 15 year time line on say a 300K account that is over a million dollar difference! I think the extra worth is worth the gain :-)
@Daniel Dietz , thanks for responding. To answer your question on the investment, I recently went on a tour with them in Belize. I'd be happy to answer specific questions privately, but as far as the cacao investment, they're just getting started so there's wouldn't be much information on past performance.
I've been contacted by Dimitriy's firm and am considering setting up a call with them to learn more. It seems, however, that they only do the checkbook IRA LLC structure, which I'm not sure fits in with my goals. Maybe things will change in the future, but I don't feel as though I need that right now. There was another forum post that suggested two companies that you could start without it initially and do it with them later, if needed. I need to re-read that thread and look them up. Perhaps that will work well for my current situation.
Also, take a look at IRA Services Trust Company as they offer self-directed IRAs that can be invested in both domestic and foreign investments.