Self Directed IRA

9 Replies

Hello All:

Background: I have a Self Directed IRA that I plan to use to make my first Real Estate Investment Multi Family (both residential and commercial) with 20 % down payment coming from my IRA.

My wife is conservative and not excited about the prospect of me investing IRA in Real Estate.

Question: At Closing, does spouse need to co-sign off at closing in the State of Michigan?What are my options really, can I invest in Multifamily, if my spouse is not on board.

I know she will come around to it if I could demonstrate some success.

Thanks

Kishore

@Kishore P.

Good question. 

If the property will be owned by the IRA (i.e., IRA funds are being invested), title to the property has to be taken in the name of the IRA custodian for the benefit of your IRA. The IRA custodian will also need to sign the real estate purchase documents. Your wife does not sign the property purchase documents because the IRA is for you not for her. In sum, you need to coordinate this with your self directed IRA custodian as they will need to be involved in signing the real estate purchase documents since they hold the self-directed IRA.

Hello Mark: Ty for taking the time to respond to my post.

Based on my research I feel the same way. But, I wanted to confirm with someone who is little more experience than I to make that call.

Sincerely

Kishore P

@Kishore P.

I know that it's your IRA and you are free to invest how you wish, but what is more important to you:

But real estate in your IRA or keep your marriage together?

I think you can do both if you are little patient and convince your wife to be on-board with you. 

Also, when you buy a property inside of an IRA you cannot use conventional financing and must use non-recourse loan. Such loan require larger down-payment of about 40%, depending on the property. Be sure to investigate this further.

Kishore, 

First I'd like to compliment you on thinking outside the box and utilizing this financial strategy in your investing.  So few people know of the benefit and tax advantage of this sort of investing.  I have used my SDIRA to flip a couple of houses and have learned some things from the experience.

Mark and Dimitry gave you very pertinent and important advice that you would do well to heed.

In addition, let me add this --Please be sure to read extensively on the requirements/advisability of purchasing a RENTAL in your SDIRA. 

First, You are not allowed to be involved with the project and neither is anyone related to you, so you will need to depend on your custodian to pay all the bills once it gets up and running, such as taxes, maintenance and insurance.  The SDIRA will do this for you, for a fee, every time a check is written.  My experience has been that sometimes the custodian is a little slow, or forgets to make the payment.  Not a deal stopper, just something to bear in mind as a possibility. 

 What I have done, for flipping a property, since it is very payment- intensive with all the holding and rehab costs, is to work with a trusted friend (not related to me) to handle all the payments.  If you are interested in how I did that, I'll explain it.  If you are ever audited you will need to show that you did not touch any of the money.

My accountant advised me against holding a rental in an SDIRA - just to do a flip once a year.  Please talk to your accountant before proceeding.  You need all the information you can get to do this right, or the potential is there for the IRS to "disallow" the investment.

Kishore,

I am a real estate investor and I am also a CPA who specializes in real estate tax and accounting. I have spoken at dozens of REIA;s over the last 12 years in 3 states, and I can tell you without fear of being wrong that Nina Davenport's points are dead-on. The IRS cannot WAIT for you to lay one finger on it and say you;re either self dealing or actively participating. Much has been written about these caveats, but not so much about what happens if the IRS proves you violated the SDIRA rules, intentionally or not. I was a Tax Examiner at the IRS and Also worked in their Criminal Investigation Division. The IRS can disallow the tax deferred status of your entity, and deem all income as taxable in the current year (and also any prior year retroactively) as ordinary income (at the hideous incremental rates about which we hear so much - 28/31/38 or more percent - plus over 20% penalty under section 6621, plus interest, and all that will come to a serious chunk of change, so be careful

Jim Kennedy, CPA

@Dimitry Fomichenko:

Thank you, Dimitry for your insight I plan to investigate thoroughly before I invest.
Appreciate your detailed response.

@Nina Davenport: Appreciate your counsel and advice. Thus, far I've had overwhelmingly feedback to my queries here in BP. I know now that I have made a sound investment by investing in BP-PRO.

I will certainly do my homework before investing with SDIRA.

Keep the good counsel coming to others like me.

Best Regards

@Jim Kennedy Thank you for much-appreciated counsel from your unique vantage point. I appreciate all differing views/opinions. I plan to take in all and come out a better investor

Why invest in real estate with your IRA? You lose the tax benefits of paying a mortgage, you pay unintended taxes by using leverage in your deal with your IRA, and you have to find a lender willing to write a non recourse loan. Not many around that will do so with only 20% down. Why not invest in real property with after tax dollars and tax the tax benefits, and invest in notes with your tax shelter. This enjoy the double digit returns notes can offer without leverage, and keep your tax benefits associated with real estate.

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