Could anyone Debunk this Article?

Question

Brian Eastman · Answer

@Dale Rast

This is an intentional hit piece.  Wall Street has been doing this for years and years.  Forbes has a habit of putting something like this out every few years.

The "bad" thing about investing your IRA in real estate is that the main Wall Street players do not have control over your funds and the means to earn commissions selling financial instruments.

His arguments are entirely tilted towards to negative and not providing any context or perspective.

I could just as easily pick 3 or 4 historically bad stock investments (Enron) or high fee annuities, and make it sound like that was all that you could expect if you went to a conventional brokerage - which is clearly not the case.

For someone who understands real estate as an asset class, there is the potential to have your IRA produce consistent returns and have true diversification away from the news-cycle volatility of conventional financial products.

Joe Villeneuve · Answer

Yes, and no.  Parts are correct as far as the "can and can't do's", but where he goes from there as far as how that hurts you is very, very short sighted.  He finds the problems with it, and stops there, never finding the solutions (which are many).  Probably because his goal is to debunk the use of IRA's for REI.

I use them for REI.  Like anything else in life, there are rules to them...and, just like anything else in life, you just have to follow them.  If you are not equipped to, then do something else...or get equipped to.

SDIRA's have solutions to every problem he mentioned.  He either doesn't see them, or doesn't want to see them, or most likely...doesn't sell them.

Marcus Auerbach · Answer

@Joe Villeneuve hold your horses! Why would lending out of your IRA be the ONLY good option?? It certainly is a good one, because it's not very invloved, but why would you ditch buy&hold?

Every startegy has it's risks - a friend of mine issued a note to a flipper and almost lost 150k out of his IRA. The money got tied up in several bad investments and some might just have been partied away. Fortunatley he had a lien on a small commercial property and a duplex he could eventually forclose on. So while the process of issuing a note is very "clean" on paper, it might get messy in the real world.

I just bought a nice single family in a top suburban neighborhood and rented it out to the retireing baby boomers with 200k income for top dollar. It is financed with 60% LTV over 25 years, cashflows well and has an excellent shot at appreciation. Do that math, I am happy with the numbers.

The article is obviously written to manipulate like @Brian Eastman said. REI with a SDIRA is not very well known. My cousin is a midlevel manager for one of the larger institutional players and consults large big companies - he lost a beer to me in a bet as he did not believe it could be done! WallStreet has a very vital interest to keep the crowds engagaed with stocks and funds.

@Dale Rast if you have not already there is a book published by the NASB that walks you through the details of SDIRA/REI investing.

Jay Hinrichs · Answer

did not read it .. but debt instruments in your IRA tend to be a better fit than owning the asset.

from a practical standpoint were folks can get in a bind is they don't leave enough reserves in their SIDRA to handle cap ex or tenant trashing of a unit.. and find themselves with not enough money in the SidRA to rectify.

Plus the other thing is you wasting your ability to depreciate the asset.. notes don't depreciate.. so there fore notes are generally a better safer fit.. as long as your buying quality notes..

Now if your in an investment were you think there is going to be some major appreciation or up side that's another kettle of fish all together..

Joe Villeneuve · Answer

Bottom line is you still have to analyze the deals, but there is a slightly different set of criteria you use.  Let me add, I use my SDIRA's for both owning property and Notes...I prefer notes though.  Just my choice of "poison" I guess.

Brian Eastman · Answer

@Marcus Auerbach and @Joe Villeneuve

We have clients who have substantially grown their retirement savings both in notes and in real estate.

And yes, we have also had folks make bad investments in both lending and property ownership.

Both types of investing can be great, and both have risks.  The best thing about diversifying with a self-directed IRA is the ability to invest in what you know and to have much more control over the transactions.  For smart investors who understand the rules, that can produce great results.

Joe Villeneuve · Answer

Both @Jay Hinrichs and @Brian Eastman nailed this.  Brian presented the most likely reason this article was written in the first place, and Jay gave you the only way (in my opinion) to use your SDIRA to invest in RE.  Make loans, hold the paper, no Tenants, no loans, etc...

Carl Fischer · Answer

@Dale Rast

I hold real estate, tax liens, and notes, in my SDIRA. I call it diversity and it has worked well for me. As mentioned rules are everywhere but the tax free Roth income is great.  I don’t care about depreciation savings if I don’t have to pay any tax.

Joe Villeneuve · Answer

Can't argue with any of this.  I guess it comes down to picking your poison.  LOL

Marcus Auerbach · Answer

@Joe Villeneuve I am always enjoying a good discussion with you! You are correct with all three issues, but here is what I would say about them. You certainly have to understand the rules of an SDIRA and then play by them. Otherwise you run the risk of loosing your tax advantages and potential fines. One of the core principles is that you can't be involved, do anything yourself or pay with your personal money. So picking a property that requires a lot of interaction is a bad idea. I can see how buying a Milwaukee 4 family with Section 8 tenants becomes dicey real fast! That's why I chose a SFR in very good condition; everything is done and paid for by the tenant. You do need to have reserves in your account, but there is also nothing stopping anyone from making a contribution to your IRA if needed. By picking the right property and making sure it is in excellent condition when you put it in service you reduce the likelihood of these issues. About having funds sitting idle, you have the same issue with a note - your lending opportunities typically don't match the number on your account statement. So, you are certainly right, there is a lot to consider and you want the investment vehicle match your financial model (you also want this outside your IRA) but I'd rather deal with that than just letting Wallstreet determine my retirement!

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