Using Self Directed IRA to purchase rental properties?

Question

Hey everyone,

Can anyone provide any information like pros and cons of using a self directed IRA to purchase real estate? Also, if you have worked with any reputable companies and had good experiences, can you please share the company name? I am considering this option to buy, and was hoping to get some guidance as well has potential fees, upside/downside to this strategy.  Thanks in advance everyone!

-Jay

John Underwood · Answer

I just bought my 5th house inside my SDIRA with checkbook control.

I maintain plenty of cash for unforseen repairs, and the account is growing quickly from all the rent from the houses it owns.

Since it is a ROTH account. I will never pay tax on the money when I withdraw in retirement.

Dmitriy Fomichenko · Answer

@Jay Maranan

Self-directed IRA will allow you to get your retirement funds from "IRA prison" and open unlimited investment opportunities. You can invest in real estate, private equity, trust deed, tax liens, precious metals, crypto currency, and much much more.

Few considerations:

With custodial self-directed IRA you would have to go through IRA custodian for each transaction (you will have to deal with delays, bureaucracy, red tape and asset/transaction fees).

Checkbook IRA structure will allow you to bypass the custodian and essentially have "checkbook control" over your IRA.

You can use leverage, which will result in UDFI (Unrelated Debt Finance Income), subject to UBIT (Unrelated Business Income Tax). This can be avoided with truly self-directed Solo 401k plan, but this plan is not for everyone, you must be self-employed (or own a small business w/o employees) to qualify for it. If you qualify however - it has number of other benefits.

Dmitriy Fomichenko · Answer

@Jason Andrews

Here is a related discussion on the topic which you may find helpful:

https://www.biggerpockets.com/...

Dmitriy Fomichenko · Answer

@Jason Andrews

You can start self-directed Solo 401k plan for your side business. Yes, you can use that to invest in RE. This plan is an amazing tax shelter, allowing you to contribute up to $58,000 sheltering your income from taxes, so yes, you certainly get added tax benefits.

Jay Maranan · Answer

@Dmitriy Fomichenko thanks for sharing your knowledge and insight!! Great blog post by the way covering a lot of info. This is a nice starting point for me. Thanks again!

John Underwood · Answer

Forge Trust Company is their name now.

Jay Maranan · Answer

@John Underwood thanks! I start researching some companies.

John Underwood · Answer

I used IRA services out of California.  They changed their name and I forget what it is right now.

Jason Andrews · Answer

@Dmitriy Fomichenko

Thanks for the information. Going to check out that Bigger Pocket link and get started on my Self direct IRA.

Jay Maranan · Answer

@John Underwood thanks for the comment! What company did you work with to set everything up?

Using Self Directed IRA to purchase rental properties?

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