All Forum Posts by: Sandra Reese

I'm familiar with a couple of the 'peer to peer' lending sites (Lending Club and Prosper).  They have a huge amount of detailed information on their sites regarding risk/reward of lending to consumers in the form of unsecured fractionalized loans.  Worth investigating but I encourage you to take time and read the information provided before proceeding -- an unsecured loan has higher risks to the lender as well as the potential for higher returns.  Weigh the pros/cons carefully before proceeding.

Just thought I'd add my two cents. An IRA is an important way for you to save for your retirement future (in addition to company sponsored retirement plans and personal savings) and that should not be neglected. Many individuals use IRA funds to invest 'off Wall Street' in an attempt to realize greater growth for the future. I always suggest that individuals contemplating real estate investments 'do the math' to determine the initial total cost of acquisition (year 1) and ongoing income/expenses including maintaining a cushion for any unanticipated expenses. If you were going to use IRA funds for a real estate investment any expense related to the investment (rehab, repairs, insurance, HOA) must be paid by the IRA - either out of income generated from the investment or from cash sitting in the account. I have seen investors get in trouble because they didn't have enough funds in the IRA to cover repairs after hurricane damaged the rental unit. The 'ROBS" approach could be a valid alternative (as suggested above) but you still need to do the math as there are costs associated with that investment structure.

Just thought I'd add some comments to what has already been posted.

1. I agree with Dmitriy that you should first understand the difference between a custodian, administrator and facilitator.  

2. Not sure that management would be easily available for an interview, however, nowadays, most custodian's websites have bios on the management team.  

3.  All specialized custodians are chartered as non-depostiory trust companies by a State and regulated and examined by the state's banking division.  

4.  Many custodians will post their banking relationships on their website.  If not, ask.  

5.  When you choose to self-direct you and only you are responsible for all decisions from selecting an custodian to determining the investment.  Yes, it is time consuming work. 

6.  Read the account agreements and disclosures.  Study the fee schedule, compare with other custodians.

7.  The people who manage the company or answer the phone are not the people who actually do the work:  open accounts, post funds, process transactions, administer the account and assets -- all different departments. 

8.  I have provided some links from various industry associations that may give some additional insight.

9.  Use the Internet - search on your concerns. Yes, you will see references to lawsuits from time to time.

10.  Whatever due diligence process you come up with apply it to investment promoters as well.  

11.  Here are some links that don't exactly address the question at hand but I believe are worthwhile for the self-directed investor.

http://www.nasaa.org/33698/informed-investor-advis...

https://rita.memberclicks.net/assets/documents/Bes...

https://rita.memberclicks.net/assets/documents/che...

Hi Timothy,  Many people prefer to work with a local company.  Midland is an administrator and has been around for quite a while.  Good luck with your investing.  S.

Hi Paula, I have spent 10 years working for custodians that will hold real estate as an asset in an IRA. I have educated many investors on the rules and regulations surrounding real estate investing in IRAs. I am currently an independent consultant and am happy to give you some information. Here are a couple of key points:

1. Real estate purchased by your IRA must be for investment purposes only, meaning you (or a direct relative) cannot use the property your IRA has purchased. Also, you cannot use IRA funds to purchase a property you currently own or a any direct relative may own (parents, spouse or your children and their spouses).

2.  There are a number of different ways to structure the investment depending on how much you have to invest.  I also suggest 'doing the math' first to determine initial cost of ownership and ongoing expenses related to the investment.

3. Any expense related to the property must be paid from IRA funds; also any income generated must go directly back to the IRA.

4.  Remember the Government created IRAs as an additional way to save for retirement therefore there are rules that deter the account owner from using those funds prior to retirement.

5. Internal Revenue Code states that an IRA must have a 'custodian' to report annually to the IRS on asset values in these accounts. The "Code" also describes who is able to act as a custodian and it is usually a bank or a company that is regulated by a state banking commission. There are many, many companies on the Internet who promote their services for self-directed investors: some are regulated custodians; others are administrators who must identify their custodian; yet others are "facilitators" helping investors set up certain structures prior to making a self-directed investment.

6. The concept of 'self-directed IRAs' and 'self-directed investing' really means that the IRA account owner is totally responsible for performing due diligence on the investment and service providers.

7. With that being said, I just want to reiterate that I am attempting only to educate you on the highlights of IRA investing in real estate. I am not promoting any investment strategy or products; not discussing any performance and giving no tax, legal or investment advice. I will be happy to provide references to various Government publications and try to answer any other questions you may have.

Hope this was helpful.