Self-Directed IRA & IRA LLC - Posted by Ty Pat

Posted by ken on June 19, 2007 at 16:28:15:

In my case no it was not rented it needed a lot of work.You could manage the property,the rent check would be made out directly to the custodian and you would mail it in along with a coupon they give you so it gets recorded properly.If any repairs need to be made you order it done then fill out a form to have it paid out of your account

Self-Directed IRA & IRA LLC - Posted by Ty Pat

Posted by Ty Pat on June 16, 2007 at 12:36:38:

Has anyone ever completed a RE transaction purchasing a major piece of real estate utilizing a self directed IRA? How smooth was the transactions? What should I be aware of when constructing this type of deal?? What are the pros & cons of using this type of tool to purchase real estate? I have close to $100K in an IRA and would like to leverage it to purchase a multi-unit property. How can I do it?

Re: Self-Directed IRA & IRA LLC - Posted by ken

Posted by ken on June 17, 2007 at 18:29:11:

I have bought 1 property in my IRA which is at Equity Trust.My attorney handled the legal paperwork as usual and i took care of the paperwork required by Equity Trust.No big deal very straight forward and if any questions you just call and they will help.I have since sold the property and held the note till the buyer fixes it up and sells it to pay me off.The paperwork was very simple for the sale as far as my custodian went.

Re: Self-Directed IRA & IRA LLC - Posted by Penny

Posted by Penny on June 17, 2007 at 11:01:50:

I’ve been investigating this also.

First and most important, be aware that the IRS is currently scrutinizing the single member IRA LLC set up for this purpose (e.g. the “checkbook IRAs”, et. al.). Should a ruling go the wrong way, then potentially the IRA funds are considered distributed and you pay ordinary taxes on the whole thing plus a 10% penalty. Potentially a truly suck-ee-doo situation!

Because of this, Equity Trust recently told me they are no longer allowing their clients to invest in the single member LLCs in this fashion to protect them against a possible adverse ruling.

That said, to use your IRA funds to invest in real estate, you need a custodian that facilitates this. The primary 3 you will see on a google search are Pensco, Equity Trust and the Entrust Group. I’m sure there are others.

Basically, you direct your custodian to make the transactions. There are fees associated with this that you need to factor in against your return. They vary by custodian, so ask lots of questions.

Even with a good custodian, there are very important IRS rules to follow regarding disqualified persons and prohibited transactions. IRS publication 590 has a lot of info and can be found on the IRS website,

Once you’ve made some profit, if you have used leverage, some of those profits will be subject to what is called UBIT taxes. This is Unrelated Business Income Taxes. It is intended to level the playing field between non-profit and for profit entities conducting the same type of business, e.g. if a church owns real estate that it rents out, the real estate business generates income for the church but is unrelated to the church’s primary purpose.

For an IRA, the UBIT tax rates are at trust rates, not corporation rates. Unfortunately, the trust rates are higher than the corporate rates.

So in figuring your real rate of return, you have custodian transaction fees and UBIT taxes to consider into your equation. If your ROI still looks good, then go for it. But I’d still compare the returns against a good old fashioned low fees index fund.

Hope this helps.

I have and it’s very simple - Posted by John Merchant

Posted by John Merchant on June 27, 2007 at 13:51:18:

In my SDIRA I’ve formed and had the SDIRA buy the shares of a new LLC.

Then the LLC opens bank account and buys the RE.

Re: Self-Directed IRA & IRA LLC - Posted by Rich-CA

Posted by Rich-CA on June 19, 2007 at 09:19:22:

Just curious. Did you rent the property out? I am interested in doing this as a “buy and hold”, so how the day to day management works is of interest.

Re: Self-Directed IRA & IRA LLC - Posted by Penny

Posted by Penny on June 18, 2007 at 07:02:25:

The folks at Equity Trust that I spoke with seemed to know what they are doing.

It sounds like you also purchased the property outright without any mortgages - much cleaner than if you try to use leverage.