All Forum Posts by: Brian Eastman

@Petya Toncheva

Please disregard the post from @Chris Wilson. He is not familiar with a self-directed IRA.

A self-directed IRA is still a tax sheltered retirement savings vehicle, just with the capacity to invest more diversely than just the stock market. Such plans have different architecture to facilitate non-traded assets like real estate, stock of privately held companies, etc., all of which an IRA can invest in per IRS rules.

The key to understand is that the IRA is the investor, not you personally. You invest your IRA in real estate because you believe you can better protect and grow the IRA with real estate than other investments.

The structure you have been introduced to is a "checkbook IRA", where the IRA owns an LLC that you can control. You are going to be much better off with that type of tool for real estate investing.

You would also benefit from working with a firm that specializes in the legal and advisory side of the process, which is something an IRA custodian such as the firm you mention cannot do directly. They will hold the IRA that holds the LLC, but they cannot providing meaningful support around your use of the LLC by rule. They will just ship you off to someone to slap together some LLC documents and not provide future assistance. I know because we get calls all the time from folks who setup a plan that way and need help.

@Krista Lance

It can be challenging to find stable, secure, and better than average returns in alternative assets with a small balance.  Because your Solo 401(k) needs to operate at arms' length from you and family, you are limited.

A lot of the things that require small amounts of capital to invest are technical and have a high learning curve, or have high volatility and risk.  I'm referring to tax liens, cryptocurrency, microlending, etc.

Lending is probably the best route if you can get into something like earnest money loans or fractional notes.

Crowdfunds may be an option, but there are limitations on how much you can invest if you are not an accredited investor.

It may be best to just plunk that money in some index funds and focus on contributions for a while.

@Yumiko A.

We have lots of clients using the BRRRR strategy in either a Solo 401(k) or a self-directed IRA.

Because a non-recourse loan is riskier to the lender, the LTV's are a little lower than one might expect when borrowing personally. This results in trapping a little more plan capital in each deal and slows the acceleration of value a little, but it is still a positive strategy for an IRA or Solo 401(k).

The smart combination of buying at a discount, adding value, and then using leverage once the asset is performing to pull equity and launch the next project is just a very good formula when executed well.

Be sure to start by reaching out to non-recourse lenders to learn about their programs.  You want to be sure the project you are considering will be able to be financed once the rehab stage is completed.

@Jason Brooks

An IRA can be constructed to provide checkbook control either with an IRA owned LLC or an IRA owned Trust. Both are effective means to give you full control and flexibility.

There is no one answer as to the right structure for your needs.  Your investment interest, the location of investment property, whether the entity will directly own property or invest in real estate partnerships... lots of variables.

Not all plan providers offer both vehicles, so seek out a few that do and chat with them.  A good advisor will be able to explain what will work best for your specific situation and why.

@Ed Grogan

Yes, your IRA LLC can open a brokerage account. It will need to be a LLC style account, not an IRA.

TD Ameritrade is a good choice. Some mainstream firms like Fidelity and E*Trade do not like the idea of a LLC that is owned by an IRA.

@David C.

Most any IRA provider you choose to work with will be a quality organization. Be sure there is a registered custodian involved. They are regulated in the same fashion as big banks and brokerages.

I suspect anything you may see that is referring to "scammy" activity involves an investment provider recommending the us of a self-directed IRA to participate in their "opportunity". IRA custodians do not offer investments, they are processors and recordkeepers.

@Cruz Gartner

Rental income is passive investment earnings.  You need to have earned income from an active business in order for that business to sponsor a 401(k) retirement plan.

@Scott George

Thank you for posting.  Seems like you may have missed including some details about the specific prohibitions that you intended to include.  Accredited investments like syndications and private RE or note funds will be prohibited.

The main thing that people need to know is that your voice needs to be heard.  We are making progress, reaching key legislators, and they see the misguided nature of this proposal.  We need to keep the pressure on with a volume of outreach.

Here is a post with more details and resources to contact your legislators.

Self-Directed IRAs at Risk - Your Advocacy Is Needed

@Daria B.

#1 - Do not panic and alter existing investments.  There will be 2 years to make adjustments if this becomes law.

#2 - ACT NOW.  TODAY.  To stop this from becoming law.  

See the following article for resources to help inform legislators why these proposals need to be eliminated from the budget bill.

Self-Directed IRAs at Risk - Your Advocacy Is Needed

@Rick Garrido

You need to work with a specialty lender that does non-recourse loans.  Most conventional lenders do not offer such loans.

Leading national providers include:

First Western Federal Savings in SD

North American Savings Bank in MO

Solera National Bank in CO

Titan Bank in TX

When an IRA uses mortgage financing, it will create taxable income in the form of Unrelated Debt Financed Income (UDFI). The income that the IRA received that is attributed to the non-IRA (borrowed) money is taxed. The tax typically does not add up to much and will be less than the amount of boost in return that leverage produces. You will want to be sure to speak with your licensed tax advisor (which your IRA custodian is not) and educate yourself on the concept before you move forward.