Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
This is a really old thread and the original contributors have not posted in it for years.
That said, some of the info was not exactly correct and some of it lacked necessary details.
First off, there is no 3 property limit, you can invest in as many deals as you choose so long as the IRA has the funds for it. Secondly, to have an IRA fund a portion and you fund a portion requires a lot of things as an IRA owner may not personally benefit from the IRA investments (prohibited transaction), as such, certain requirements must be followed to do such a thing.
Also, there was mention of buying, fixing, then re-selling. If that is done and is the intent of the investment, it will likely be taxed UBIT (a complicated tax for IRAs) as such a business competes with non-tax exempt/tax-deferred business operations.
Finally, in my opinion, the best way to utilize a SDIRA is to make loans secured by RE (for passive investments). Since RE offers tax depreciation deductions on buy and holds, you lose such an advantage in a SDIRA as it is already a tax advantaged entity. Secondly, you must be so very careful as to not perform a prohibited transaction or involve a disqualified party. Either will result in the full early dispursemnet of the IRA and result in the moneies taxed along with an additional 10% penalty. (If your IRA is worth $1M, and the prohibited transaction was only $10 dollars, the entire $1 million IRA is now penalized.
Real Estate Investor · Lubbock, TX · Member since 2008 · 182 posts · 10 votes
19y
Madabney,
There are companies that specifically deal with this type of IRA. I happen to use Equity Trust Co. in Ohio and have been very pleased. One can transfer all or a portion of an IRA into a self-directed account. The funds are then availabe for investing into real estate at your direction. The option is available for up to 3 properties per year. The properties can be partially or wholly funded by your IRA. This is a real zinger of a way to quickly restore one's IRA which was decreased by the internet bust (things will keep appreciating, beware!). The contribution limits are $4000 per year right now. I'm using my IRA to hold the mortgage notes for me, so each month when I receive payments, I forward them for deposit to my IRA to be used on another property later. Some companies will pay a small amount of interest on the cash account, but the interest rate on the investment is determined by your abilities to find undervalued properties, sell at a profit and possibly hold the note in the account if you the buyer can't obtain financing elsewhere. There are some strict guidelines for example; all expenses on the property have to be paid out of the IRA fund, remodeling, taxes, etc.. Best of luck :D
los angeles, CA · Member since 2008 · 87 posts · 1 vote
19y
i think it's even better to take it one step further and purchse an LLC with IRA. if done right you don't have as many restrictions and have more control.
i'm actually in the process of doing this right now. plus, i am getting a huge LOC for the LLC thru the company who is setting this all up for me.
it will be just for RE.
the company is called Wolfe Capital Group. very interesting.
los angeles, CA · Member since 2008 · 87 posts · 1 vote
19y
though i am still in process of setting up LLC, i know from reading other sites and articles that there is no limits on number of properties. if it is done right the LLC is it's own entity, with IRA owning membership shares.
the one restriction that is tricky, is leveraging. if not set up correctly you could have to pay taxes, because you can't have debt in the IRA is the way i understand it.
we will be setting ours up in such a way as to avoid this problem. though i don't know the specifics yet, i have talked to a couple of consultants and they say IRA investing in a LLC is the way to go, if done correctly. and they say we can avoid many restrictions and that there are ways to do it. without actually hiring them, they wouldn't get specific either.
if you want to talk about it more call me at 619-807-3179 pst.
Jimbo, I'll be calling you. The more I use my SDIRA the more I learn that almost no "tax and legal professionals" know what the heck to do with it. I used a local (Dallas, TX) franchise/affiliate of Entrust called IRA Plus Southwest to act as my account administrator. I provided a buy instruction letter directing them to purchase the member holdings of an LLC that I created. That LLC has since purchased and sold 2 properties and is currently holding another in repair phase. I located a hard money lender that also utilizes his IRA in this manner, that agreed to loan the IRA a non-recourse loan (eliminating the IRS restrictions) in order to do more properties since I had been funding the purchase and repair 100%.
This leads me to my question. How did you find a LOC that's non recourse to an entity? What are the terms and conditions? Can you put me in touch with them?
I'm also learning about debt usage within this entity as it's my first time. I'm about to break the ice, so I'm anxious to know what you've discovered and how it may impact you. I feel we're both treading on virgin ground.
Glenn
los angeles, CA · Member since 2008 · 87 posts · 1 vote
19y
you're right about non-rcourse, butr those aren't easy to find. in my scenario i won't have to go that route. the company i'm working with is at www.wolfecapitalgroup.com. the guy i'm dealing with is Tanner at 702-982-5226.
i'll also be giving you a call.
you did exactly what i'm doing, but you have to be very careful in the wording of your LLC and way you purchse it with self-directed IRA, or you'll have IRS problems.
i found a good article at www.paladinregistry.com/LFP/article_detail.php?articleid=537&article_category=5. i also contacted this guy and talked to him for awhile. i will probably use him as a consultant once i have everything ready to go to double check the plan.
How are you coming along with IRA? Haven't seen you comment lately. What have you learned so far? These are new paths we're pounded, so share the knowledge wealth as you break ground.
Glenn
Bakersfield, CA · Member since 2008 · 25 posts · 0 votes
19y
I recently opened two self directed Roth IRA's with Equity Trust Company, one for me and one for the wife. We didn't have anything to rollover, so we're only working with initial funding of $8,000 each for 2006 and 2007.
I'm currently reading up on tax liens and tax deeds in order to grow the accounts. I'm also thinking of buying a note at around 10-12%. Anyone else buying tax liens, tax deeds or notes with their IRA?
Real Estate Investor · Lubbock, TX · Member since 2008 · 182 posts · 10 votes
19y
Glenn,
Things are going well. I closed on a cheapie on Monday. A house bought for $13,000. I plan to spend $3000 on the rehab. for a total investment of $16,000. The property will sell at $39,000 on a 12% note. The payments, taxes and insurance will be around $500.00/month which is in line with rents in the area. This is my big selling point on these deals. "I'll sell you the house for $500/ month or I'll rent it to you for $550/month. when you look at 12% on my investment over time the numbers are phenomenal. Thanks for asking :lol:
Real Estate Investor · Lubbock, TX · Member since 2008 · 182 posts · 10 votes
19y
Hi biggq,
There's been some good discussion on the site about tax liens and deeds. Keep us posted. By the way, can we thank biggerpo enough for this incredible website?!
Tahoe City, CA · Member since 2010 · 16 posts · 3 votes
15y
Mike - Curious if you are still posting here. I have been considering turning my IRAs and 401K's into SDIRAs. I like the iTrust, but the thing that is bugging me is: do I want to hand a significant sum of money to some company I've never heard of in Las Vegas or godknowswhere Utah? Clearly, funds must be transferred to the custodian, right, who promptly will direct them as I wish. How long do they actually hold my funds?
Real Estate Investor · Fishers, IN · Member since 2009 · 408 posts · 196 votes
15y
I have been using my SDIRA and teaching the concept for some time now. I have actually done some speaking, coaching and mentoring on the topic and have created an ebook on the topic.
If anyone is heading to the Equity Trust Conference I would love to catch up and network. Self Directed IRA's are my passion.
Real Estate Consultant · Las Vegas, NV · Member since 2011 · 4 posts · 0 votes
15y
There are actually a lot of different things you can invest in using the self directed IRA. And there are a lot of benifits to using it to invest in Real Estate. I work with a man named Greg Herlean. He is kind of a Guru when it comes to the SD IRA and has even written an E-Book about it. Feel free to check it out for free. I think it will help answer a lot of your questions and give you more ideas when it comes to the SD IRA
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
This is a really old thread and the original contributors have not posted in it for years.
That said, some of the info was not exactly correct and some of it lacked necessary details.
First off, there is no 3 property limit, you can invest in as many deals as you choose so long as the IRA has the funds for it. Secondly, to have an IRA fund a portion and you fund a portion requires a lot of things as an IRA owner may not personally benefit from the IRA investments (prohibited transaction), as such, certain requirements must be followed to do such a thing.
Also, there was mention of buying, fixing, then re-selling. If that is done and is the intent of the investment, it will likely be taxed UBIT (a complicated tax for IRAs) as such a business competes with non-tax exempt/tax-deferred business operations.
Finally, in my opinion, the best way to utilize a SDIRA is to make loans secured by RE (for passive investments). Since RE offers tax depreciation deductions on buy and holds, you lose such an advantage in a SDIRA as it is already a tax advantaged entity. Secondly, you must be so very careful as to not perform a prohibited transaction or involve a disqualified party. Either will result in the full early dispursemnet of the IRA and result in the moneies taxed along with an additional 10% penalty. (If your IRA is worth $1M, and the prohibited transaction was only $10 dollars, the entire $1 million IRA is now penalized.