Where to put idle $20K that's in a SD-IRA account?

12 Replies

I have around $20K of lazy cash in my SD-IRA (this is with iPlan Group) that's come from some hard money loan payments that I have received. I want to put it to work, but not doing more notes.

These crowdfunding platforms like FundRise, PatchofLand, etc, are marketed thoroughly on the BP podcast, and the marketing worked on me because that was at the top of my mind as to where to put the money.

So I've called up Fundrise and RealtyMogul a few times talking to different reps that gave me different information about whether I could invest with them with my SD-IRA. I am sure it is possible but the path ahead to get the funds to them isn't obvious and they really weren't much help. I may have to go the route of creating the SD-IRA LLC to enable checkbook capability to make that possible. I am not sure it is worth the trouble or cost yet. So I am checking other options, perhaps there is a go-to option for idle money for SD-IRAs I can learn about from this post.

Most of what I have found regarding SD-IRAs here has mostly to do with their rules, like disqualified persons, UBIT, etc. But not the actual investment options. There were a few mentions in this article, but I don't see those as being quick deploy, straightforward options (like LLC or business equity), especially for a smaller sum of money.

I've read a bit about REITs being better than crowdfunding in that the former has better liquidity with the same amount of risk.

Another consideration is to put the money back at Vanguard into the 500 index. I haven't yet checked into the red tape of doing that.

Any recommendations? Am I headed down the right path? 

@Paul Winka

Contact support at iPlan. Your IRA with them is capable of investing in crowdfunds as well as conventional stocks and mutual funds on a brokerage. A custodian held IRA is not always the most efficient way to make such investments as there will be intermediary paperwork and fees charged by the custodian. Be sure to understand what those are as compared to sending funds back to Vanguard for making more traditional investments.

The IRA LLC will make any investments more seamless and eliminate any 3rd party fees. You can open an account with a crowdfunding platform or a brokerage house in the name of the IRA-owned LLC. It then becomes more seamless to take income from non-traditional assets such as notes and move that onto your LLC held brokerage platform to keep that capital productive.

@Paul Winka my 3 partners and I all have SDIRAs that are invested in an LLC 'with checkbook control'. In that setup, it is VERY easy to set up an account at a brokerage such as Fidelity etc... and park the money there until needed. Wu just use simple index funds to spread the risk out. We can have cash in just a day or two if needed.

Dan Dietz

Originally posted by @Brian Eastman :

@Paul Winka

Contact support at iPlan. Your IRA with them is capable of investing in crowdfunds as well as conventional stocks and mutual funds on a brokerage. A custodian held IRA is not always the most efficient way to make such investments as there will be intermediary paperwork and fees charged by the custodian. Be sure to understand what those are as compared to sending funds back to Vanguard for making more traditional investments.

The IRA LLC will make any investments more seamless and eliminate any 3rd party fees. You can open an account with a crowdfunding platform or a brokerage house in the name of the IRA-owned LLC. It then becomes more seamless to take income from non-traditional assets such as notes and move that onto your LLC held brokerage platform to keep that capital productive.

Hi Brian, can an old LLC be used to enable the checkbook control? Does it have to be in the custodian's state or does it not matter? What are typical set-up fees?

Originally posted by @Daniel Dietz :

@Paul Winka my 3 partners and I all have SDIRAs that are invested in an LLC 'with checkbook control'. In that setup, it is VERY easy to set up an account at a brokerage such as Fidelity etc... and park the money there until needed. Wu just use simple index funds to spread the risk out. We can have cash in just a day or two if needed.

Dan Dietz

Dan, thanks... My question was more about the WHAT than the HOW, but you answered both questions. :)

Other than index funds, I see REITS and crowdfunding as other avenues. Have you personally tried either, and have a preference to which and what company you used for that?

And just a one-off question for you, but do you see owning property, whether financed or not, as more trouble than it is worth inside of a SD-IRA? Loss of depreciation benefits and fatter CPA bill come to mind...

@Paul Winka we have not tried any of those other REITs or Crowdfunding and I don't think we will either. Percentage wise we are pretty heavy on real estate in our retirement accounts already, so we prefer to just keep it simple in the stock market. We use TD Ameritrade as that is where we have all of our regular IRA funds so know their site, tools etc... already.

I dont really think of it as any more work. The paperwork is comparable or even less if not leveraged. We so far have only leveraged our SOLO401s, which do not require the same paperwork as SDIRAs due to the lack of UDFI if I am saying that right.

IF you choose to leverage inside of a SDIRA, you also 'gain back' the right to part of the depreciation etc....

The reason we originally started using Retirement Funds is that is where a very large percent of our assets were ALREADY. We can make better returns more safely than in the stock market and you gain the advantage of loan paydown and leverage if you want to.... a win, win, win all the way around.

IF I had 'cash' to deploy I dont think I would put it INTO a self directed in most cases, but when it is already there it seems to make sense.

Dan Dietz

@Paul Winka

I own several crowdfunding assets in my SDIRA along with some turnkey rentals. You don't need the LLC w/ checkbook control. Crowdfunding deals like the ones on fundrise, etc are all completely passive. Your custodian cuts one check and then your done. There's no ongoing expenditures.

If you own real estate with a good property management company you can leave them with a reserve of money to cover any maintainence, etc so you don’t need to consistently write checks. They can pay bills on your behalf with reserves, rent payments, etc.

Originally posted by @Jared Friedman :

@Paul Winka

I own several crowdfunding assets in my SDIRA along with some turnkey rentals. You don't need the LLC w/ checkbook control. Crowdfunding deals like the ones on fundrise, etc are all completely passive. Your custodian cuts one check and then your done. There's no ongoing expenditures.

If you own real estate with a good property management company you can leave them with a reserve of money to cover any maintainence, etc so you don’t need to consistently write checks. They can pay bills on your behalf with reserves, rent payments, etc.

Just curious, which crowdfunding platform do you use, and are you happy with them? 
Originally posted by @Daniel Dietz :

@Paul Winka we have not tried any of those other REITs or Crowdfunding and I don't think we will either. Percentage wise we are pretty heavy on real estate in our retirement accounts already, so we prefer to just keep it simple in the stock market. We use TD Ameritrade as that is where we have all of our regular IRA funds so know their site, tools etc... already.

I dont really think of it as any more work. The paperwork is comparable or even less if not leveraged. We so far have only leveraged our SOLO401s, which do not require the same paperwork as SDIRAs due to the lack of UDFI if I am saying that right.

IF you choose to leverage inside of a SDIRA, you also 'gain back' the right to part of the depreciation etc....

The reason we originally started using Retirement Funds is that is where a very large percent of our assets were ALREADY. We can make better returns more safely than in the stock market and you gain the advantage of loan paydown and leverage if you want to.... a win, win, win all the way around.

IF I had 'cash' to deploy I dont think I would put it INTO a self directed in most cases, but when it is already there it seems to make sense.

Dan Dietz

Re: "IF I had 'cash' to deploy I dont think I would put it INTO a self directed in most cases, but when it is already there it seems to make sense"                That tells me all I need to know regarding properties & SD-IRAs. Thx.

Now I've got a serious case of shiny object syndrome with what to use this money for. As of this moment note buying has my interest. That might be just the thing. I am reading "Paper Profits" by Joshua N. Andrews to buy owner-occupied notes. I am hoping this will counter the HMLs to flippers which are less passive than I thought they would be.

I use CrowdStreet. You need to be an accredited investor to use them.  I believe fundrise, realtymogul and some of the others you don’t but they all work with sdira funds. 

@Paul Winka to clarify what I meant is this;

I have a SOLO401K that I can stick a LOT into if I want to, but most of what is in there was rolled over from IRAs. Say I have high income this year and end up with 40K to invest. If I just invest it in 'cash' properties I can buy 200K worth @ 20% down. If I stick it into my SOLO401K and buy a property *usually* I would only be able to buy about 100K of property as non recourse loans generally want 40% down. So in essence, you can buy twice as much in cash account compared to retirement account.

Now here is a BIG but :-) IF you can find a way to leverage say at the same 20% inside of a retirement account, AND you dont need the cash flow or equity growth right now (say you are looking at wealth building for retirement) THEN is might make sense to put those funds into a retirement account.

Hard to do, but I am just now starting to explore the purchase of a portfolio of 10 units that the owner ONLY want to sell using seller financing for both spreading out the tax hit and the income stream. He is willing to do a non recourse with minimal down (10-20%). I am leaning HEAVILY towards doing that in my SDIRA and SOLO401K where I WOULD need to make a large contribution, because of the amount of leverage I can apply.

So it is not that I dont like rentals in a retirement account, it is just that *typically* you can get more dollars worth in cash. Depends on goals.

Dan Dietz

Originally posted by @Jared Friedman :

I use CrowdStreet. You need to be an accredited investor to use them.  I believe fundrise, realtymogul and some of the others you don’t but they all work with sdira funds. 

I have not heard of CrowdStreet. I'll check them out. And as far as being an accredited investor, I do happen to meet the criteria, but was surprised to find out how these crowdfunders vet that. The rep just asks you on the phone and off you go. No proof required.
Originally posted by @Daniel Dietz :

@Paul Winka to clarify what I meant is this;

I have a SOLO401K that I can stick a LOT into if I want to, but most of what is in there was rolled over from IRAs. Say I have high income this year and end up with 40K to invest. If I just invest it in 'cash' properties I can buy 200K worth @ 20% down. If I stick it into my SOLO401K and buy a property *usually* I would only be able to buy about 100K of property as non recourse loans generally want 40% down. So in essence, you can buy twice as much in cash account compared to retirement account.

Now here is a BIG but :-) IF you can find a way to leverage say at the same 20% inside of a retirement account, AND you dont need the cash flow or equity growth right now (say you are looking at wealth building for retirement) THEN is might make sense to put those funds into a retirement account.

Hard to do, but I am just now starting to explore the purchase of a portfolio of 10 units that the owner ONLY want to sell using seller financing for both spreading out the tax hit and the income stream. He is willing to do a non recourse with minimal down (10-20%). I am leaning HEAVILY towards doing that in my SDIRA and SOLO401K where I WOULD need to make a large contribution, because of the amount of leverage I can apply.

So it is not that I dont like rentals in a retirement account, it is just that *typically* you can get more dollars worth in cash. Depends on goals.

Dan Dietz

 

Dan, when I first read your reply it was like hearing Charlie Brown’s teacher. But you put my mind to work.

What I gathered is that normally to leverage what you have inside a SDIRA or solo401k with a bank, it will be a non-recourse loan, typically 40% down, 10% reserve, so essentially a 50% down payment. The part I am still trying to figure out is if the UBTI on the 50% that’s financed will be any more of a tax burden (or benefit, if depreciation & operating expenses exceeds rents) than it would be it were just a cash or conventional financing type of deal.

I hope it is as simple as the rent received, the operating expenses, and the depreciation would all be on the financed portion of the house, ostensibly 50% for the 40% down 10% reserve I described above. So whatever I would have on my schedule E for this property would be half of what would normally be. But I am sure it is not quite that simple. Hahaha, this is the IRS, so probably not!

In your example of seller financing, non-recourse at 80% LTV is a big improvement over what a bank could offer you. And this is a great apples to apples comparison because the LTV is typical for a conventional loan.

I wish you luck on that deal. Can you tell me if I am on the right track with the UBTI?