Rule #3 in Self Directed IRA Investing - Avoid Personal Use

Simple but interesting case study for you today. I had a chance to go golfing with a client last night that is starting to do a lot of deals in his IRA. Mr. Cooper proceeded to tell me how he is excited and looking to expand his IRA investing palette beyond just real estate. He had found a great piece of artwork from a friend and was going to buy the artwork in his IRA and then sell it to an art collector while making a quick 10% on his money. At this point in his story I had to burst his bubble and tell him he could not do that investment in his IRA. Rule #3 as I refer to it from this post is the investment cannot be for personal use. Now you would say, well Kevin, all he is looking to do is flip the artwork like a house right? Wrong, artwork, collectibles, coins, and rugs are examples of prohibited investments because there is no way for controls to be in place to make sure these are not bought for personal use. That is why, buying a property and living in it, is considered prohibited. It would be no different than Mr. Cooper buying the artwork, putting it on his mantle at home, and then selling it to the art collector at some point in the future.

Use this example as a simple reminder when you are doing your real estate investments in your self directed IRA.