Investing in real estate with an IRA

[snowbank]

Does anyone here do this? I don't mean real estate based mutual funds, but actual real estate.

 

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[SteveO]

I know that people here do this. In fact, some have done this on my deals.

I don't have a lot of details though. The paperwork was done by the investors and our attorney.

All it takes is a self-directed IRA and a bit of patience.

 

[snowbank]

I know that people here do this. In fact, some have done this on my deals.

I don't have a lot of details though. The paperwork was done by the investors and our attorney.

All it takes is a self-directed IRA and a bit of patience.

I sent my accountant an email today asking about this and I asked him if I could put the money into investments/rentals, and he said only certain real estate investments qualify, and that rental properties weren't included. He mentioned I could invest in REITS, but didn't make it seem like I could invest in investment deals on my own, which I know I've heard others do. Know anywhere I could get more details on this? Is this maybe just not normal for people to do? Could the same be done investing in a private business?

 

[phlgirl]

It would probably be best for you to speak with someone at a 3rd party 'custodian' company. Entrust, Pensco & Guidant are a few examples.

There is a thread about the self-directed IRA here somewhere, which explains a bit more about this topic - under Asset Management, I think?

The trick is it cannot be 'self-dealing' - everything related to the investment must be handled by a 3rd party.

We have a few investors who use this approach; however, as SteveO mentioned, the liaison company pretty much does all the work.

 

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[ZenSatori]

I use Equity Trust.

Once upon a time I had a rollover IRA that I put in a hot tech fund (just about the time of the dot-com crash). Went from $55k down to $18K...not pretty.

Around the same time I started taking real estate investment courses at GAREIA; one of my instructors (and eventually, friend) was Don DeRosa (he's mentioned in Gary Keller's "The Millionaire Real Estate Investor"). I learned all about self directed IRAs as part of my training, and I figured what the heck. So he's using it and I am getting a decent return.

I get statements from Equity Trust, and the investment is secured by a nice house in Alpharetta, GA.

To me, the fees are kind of high though (although they are deductable).

Zen
ProjectNOMAD

 

[erikko]

I haven't try Equity Trust but i might one of these days

 

[randallg99]

I've used Entrust.

 

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[andviv]

I've used Entrust.

And.... ?
good? bad? cheap? expensive? great customer service? is it working for you? What is missing? what would you change from them?

Are you using them to buy a SFH as a rental? or to invest on somebody else's deal? mutual funds? REITs? Buy shares?

And I will come up with more questions later, once I'm done with my coffee.

 

[randallg99]

And.... ?
good? bad? cheap? expensive? great customer service? is it working for you? What is missing? what would you change from them?

Are you using them to buy a SFH as a rental? or to invest on somebody else's deal? mutual funds? REITs? Buy shares?

And I will come up with more questions later, once I'm done with my coffee.

I can't say anything bad about them, but they've recently assigned a new trustee to handle their funds (wells fargo) - I received a vague letter about this so I am not entirely sure what has happened, I have not looked into the "takeover"... should probably put that on my list-of-things-to-do

customer service is fine and the service is really inexpensive all things considered.... to spend a few bucks to save ten's of thousands is really the no brainer of the day

I used Entrust to purchase shares of a start up company which bought real estate . When/if the shares are liquidated into cash, I can move the cash anywhere I'd like or continue using Entrust to facilitate other transactions.

RE had stratospheric rise the last few years and it's has been almost a self defeating prophecy to buy SFH or multi-fam real estate in a tax deferred vehicle for several reasons-

1. the tax on appreciation can be deferred without using a self direct IRA via 1031 exchanges

2. positive cash flow using today's metrics was not the tax burden as it was say only 5-10 years ago due to diminishing cash flow on current valuations

3. depreciation and other expenses are not tax deductible in IRA.... and to me, one of the biggest benefits is that real estate provides a most excellent form of a government tax shelter in the form of depreciation.

4. funny laws apply to "losses" within the IRA... (I don't think you can have any carry forwards in the IRA... could be wrong so check with someone who went to college for a few years for an accounting degree on this....)

5. dd expenses cannot be used as write offs for IRA purchases per my accountant... local properties doesn't have a significant cost, but think out of state, flights, hotels, etc...

hope this helps - fire any more questions my way after you finish that coffee heh

 

[StreetsofSilver]

If you want to purchase real estate, one option is to setup an account with an independent IRA custodian that allows you to purchase real estate within your Roth IRA. Most banks and brokerages do not allow this (they deal more with stocks, mutual funds, etc.) so you will have to shop around to find one that does. It is legal and it allows you to purchase real estate with tax-defered money. The transition is pretty simple to transfer funds from one IRA to another, but you will have to pay a fee.

 

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[LongHorn]

Has anyone found a custodian to handle a Coverdale Education Savings Account and allow self-directed investment in RE?

 

[MobileHomeMavs]

Has anyone found a custodian to handle a Coverdale Education Savings Account and allow self-directed investment in RE?

That is an excellent question I have never even thought of. I have been doing my mobile home notes into a self directed IRA, but would also be interested in if an education account is possible. I only have a upromise for my kids and it is not going to keep up with what they need. If I could move some notes over then I would be set. I will ask my accountant as well.

 

[GlobalWealth]

One of my company's strategic partners is offering a large discount to subscribers of my newsletter. They are a self direct IRA (also ROTH) facilitator and they are offering $500 off initial set up. PM or email me and I can give the code.

 

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[markhill]

Hello,

A lot of the clients we work with invest via their IRA's.

The key thing you want to make sure that you don't do is any "self dealing". The IRS won't allow this type of investment via your IRA. Below is a list of what you can't do, since this is the first thing a lot of clients ask us.

* Your IRA Cannot Purchase Property Owned by You or a Disqualified Person
* You Cannot Have "Indirect Benefits" from Property Owned by Your Self-Directed IRA
* Real Estate IRA Investments Are Uniquely Titled
* IRA Investments that Use Financing Must Pay UBIT
* Real Estate IRA Expenses Must Be Paid from Your IRA
* Real Estate IRA Income Must Return to Your IRA

If you know you want to invest but are not sure you are following IRS guidelines feel free to contact me because you don't want to lose the tax-deferred status that your IRA provides.

If you have any other questions don't hesitate to contact me directly.

Have a great day,

Mark

 

[GlobalWealth]

Spam hammer?

 

[andviv]

Spam hammer?

let's give him a chance... seems like he knows the stuff but did not bother to read the rules for new members.

for now we removed the sig link, and we are still concerned all his answers look like copy/paste and repeated content, so we'll see.

 

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[GlobalWealth]

let's give him a chance... seems like he knows the stuff but did not bother to read the rules for new members.

for now we removed the sig link, and we are still concerned all his answers look like copy/paste and repeated content, so we'll see.

Fair enough. It seems he is knowledgible, but all of his first posts are selling his services. He is making a direct effort to sell. I will withhold judgment.

 

[LagunaLauren]

I have the ability to buy RE from an IRA. I rolled over my old 401ks into a self-directed real estate IRA LLC. Did it through Guidant Financial (guidantfinancial.com). Technically I can buy RE with these funds, but it would be a non-recourse loan since the IRA llc would be holding title and most lenders won't do non-recourse loans these days. Back when they would, they typically required 40% down at least. The revenues from the RE purchased by the IRA go back into the IRA, not in your pocket personally. Call Guidant. They're chock full o' info for ya.

(We did a big thread on this before if you wanna search for it. Had lots of specific info there...)

 

[LagunaLauren]

I sent my accountant an email today asking about this and I asked him if I could put the money into investments/rentals, and he said only certain real estate investments qualify, and that rental properties weren't included. He mentioned I could invest in REITS, but didn't make it seem like I could invest in investment deals on my own, which I know I've heard others do. Know anywhere I could get more details on this? Is this maybe just not normal for people to do? Could the same be done investing in a private business?

Your accountant isn't correct in this. You can invest in all kinds of RE with your self-directed IRA. You can do whatever deals you want on your own. You can even loan money to people from it, provided they are not your spouse, relative or business partner, etc. There is a specific way you can use funds to set up a busniness, but I didnt do that personally. Call Guidant Financial. I did this and it works. Easy and legal.

 

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[Jill]

Snow ~

Completely agree with Laguna. Most bankers/accountants/custodians will tell you the same thing, either because 1) they don't know any better, or 2) they don't offer any such investment opportunities from which you can choose!

We use Pensco Trust, and are pleased, overall. If anything, I think they're still a bit too conservative in telling me what they will and won't approve. Come to think of it, I may check out LL's custodian!!

I've only found one lending company who still offers non-recourse loans. Basics are that you put down 40%, leaving at least 30% of the prop value in cash to cover expenses, vacancies, etc, and the min property is 900 sq ft, IIRC. PM me if you want their contact info. Altho I'd be interested to know if anyone else has a different non-recourse lender!

 

[LongHorn]

Jill -- please name names on the non-recourse lender. I am looking for one without much luck. (Jill, I am about 50 miles to your SW).

B/c my account lacks enough zeros to put 40% down and still have 30% in cash and still buy the properties I want, I am considering going in with a partner (non-related) on the deal, which would be my Roth and him (individually), with him guarantying the loan personally, and non-recourse as to my Roth. Hopefully we can get closer to 20% down financing since the lender will have a personal guarantor on the loan. Next go 'round, it will be his Roth and me, individually, and my turn to guaranty the loan.

MobileHomeMavs, I have not pulled the trigger yet, but I have found a Coverdale Custodian for when I manage to pull off my pie in the sky deal -- buy and hold a pair of quad-plexes a block from a college campus (steady renter stream, and this area has 100% held its property values despite the economymulti-family three of them actually.

I actually have three options for you: (1) Entrust (several branches but I was talking with guys in Houston), (2) Equity Trust, and (3) Provident Trust. Even more good news -- I think all 3 will also be a custodian for a Health Savings Account, so you can bank some $$ for future medical care. IIRC, Provident had a flat rate annual fee on all accounts, and the other two had an annual fee and also wanted a % of the account value. Either Entrust or Equity Trust gave a Coverdale 3 years for the price of one, which was a nice deal.

In additional to waiting for my ideal transaction before opening a Coverdale, part of the reason I have not opened a Self-Directed Coverdale Account yet is the fact that you can withdraw $$ from a Roth to pay for qualified educational expenses of the account holder, spouse, kid or grandkid. IIRC from my days of taking out student loans, "qualified educational expenses" is a number that each school comes up with for cost of attendance which includes tuition, books, fees and average housing, and is the max you can borrow on federal student loans.

So I didn't feel the need to pay the extra fees to have a dedicated Coverdale Account. Additional reasons I am not rushing out to do a Coverdale -- kids can borrow for college, you cannot borrow for your retirement! And if you make a RE investment as some combination of a self-directed Roth and Coverdale, and plan to continue to own the asset (like I plan to do), you have a problem of disentangling the CESA from the transaction, or having the Coverdale "age out" when the beneficiary turns 30.

But a dedicated account for education (including private school K-12) is awfully attractive, conceptually at least. You can change the beneficiary of the CESA until the beneficiary turns 30, and name any family member, including grandkids. My kids are 5 years apart, so the oldest will be 35 (presumably with kids) by the time the clock on the CESA forces my hand, and I can name a grandkid as beneficiary and continue to build the assets in there.

I have my eye on this pair of really multi-families, and would buy and hold them for the long haul. Thinking of doing that one as a combination of my Roth 65%, CESA 25%, and HSA 10%, provided I can find a nice non-recourse lender. Once it is paid off (after mu kids graduate), I'd continue to bank the 1/4 on the CESA, and have a nice sized account by the time my grandkids are ready to tap into that.

So Jill, please name names. My kids' education and my future health are in your hands!


PS. I also found a Roth custodian (tmico.com) who charges an annual flat rate of only $37.50 (by far the lowest I have seen) with no percentages of account value. But all they do is IRAs, so no Coverdales or HSA's.

 

[LagunaLauren]

Snow ~
Completely agree with Laguna. Most bankers/accountants/custodians will tell you the same thing, either because 1) they don't know any better, or 2) they don't offer any such investment opportunities from which you can choose!

True-Most bankers and accountants don't know about (or know enough about) self directed RE IRA llcs and traditional stock brokers don't promote it or offer it, of course. I was at Chase opening my Self-Directed RE IRA llc bank account, where the Trust co. that Guidant uses was transferring ~$300k of my old IRAs. While I was opening the acct, the head Chase banker lady specializing in investments and IRAs etc. came to talk to me. She had absolutely no clue about the self-directed RE IRA thingy! :coco: I had to tell her about it and how it works (and suggested that she look into it). Thought at least the "specialists" at banks should know about it.

 

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[Jill]

Jill -- please name names on the non-recourse lender. I am looking for one without much luck. (Jill, I am about 50 miles to your SW)...So Jill, please name names. My kids' education and my future health are in your hands!.

Well, I must hesitate, since I'm afraid your idea of educating your children would involve burnt orange (based on your login ID.):talktothehand:

But I'll go ahead, against my better judgement.

I have not used them, so please don't consider this a recommendation or endorsement. But my conversations with them have been good. Self-Directed IRA Non-Recourse Loans: Contact NASB for IRA Loans, which is North American Savings Bank. You may also find interesting their NASB - IRA Lending Blog.

Let us know how it works out for you.

 

[LagunaLauren]

Well, I must hesitate, since I'm afraid your idea of educating your children would involve burnt orange (based on your login ID.):talktothehand:

HEY!!! Easy there woman!! :smxB: Don't forget about OTHER members here who bleed burnt orange for their alma matter!

Hook 'em Horns!! :icon_super:

 

[NoMoneyDown]

HEY!!! Easy there woman!! :smxB: Don't forget about OTHER members here who bleed burnt orange for their alma matter!

Hook 'em Horns!! :icon_super:

I didn't realize MJ had a "Hook'em Horns" emoticon on this board. LOL

 

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[Jill]

HEY!!! Easy there woman!! :smxB: Don't forget about OTHER members here who bleed burnt orange for their alma matter!

Hook 'em Horns!! :icon_super:

Oh, brother! (Where's the eye roll emoticon?)

Oh, LL. I knew you must have an Achilles heel..... Now I know. :smxB: Bless your little heart.

 

[Luke12321]

And I thought the North Carolina schools rivalries ran deep.... lfftopic: