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Self-Directed IRA, Investment Property & Mortgage

My wife and I are considering a somewhat unique real estate investment opportunity. I've heard that it's possible to purchase investment property inside a self-directed IRA. Since this would be purely an investment property, I think this might be a good approach for us. However, I have no idea how the mechanics of such a transaction would work. Does anyone here have experience with these self-directed IRAs?

There are a whole host of complications, as well, which will probably make this much more difficult. For example, we don't have enough money in our IRAs to purchase the property outright. So is it possible to get a mortgage for a property purchased inside a self- directed IRA? Also, can we somehow combine money from our 3 IRAs (I have a traditional and a Roth; she has just a Roth) to purchase the property? These are just 2 issues that I thought of off the top of my head.

If push comes to shove, we'll just forego the self-directed IRA idea. I thought it would be nice, but since this is our first real foray in to real estate investing, it might be better to just keep it simple.

Thanks in advance, Bill

Reply to
Bill Woessner
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These IRA/real estate deals get talked about in the press much more than they should, it's a pretty unusual scenario where it will work. It's difficult to follow the rules about IRAs while owning real estate, so you run the risk of disqualifying your IRA. Borrowing money is a big problem, you'd generate what's called "UBTI", unrelated business taxable income. So that in itself sounds like a deal-killer for you. And given that you lack the IRA funds to buy outright, what happens when the property needs a roof, or other expensive maintenance - how to pay for it? You can't add money to your IRA, and you can't loan money to your IRA. So IRA ownership raises some practical cash flow problems.

Plus, rental real estate has many tax advantages associated with it, that you give up by owning it in an IRA. Self-help legal publisher Nolo Press has a very good book about rental property taxation and record keeping

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it's good reference if you do pursue real estate investment in the normal way (non-IRA).

Given that you haven't owned real estate in the past, this is adding another (significant) risk factor.

As for buying into the beginning of the bubble-pop...separate topic!

-Tad

Reply to
TB

When people refer to owning real estate in their IRA, they are usually referring to real estate investment trusts (REITs). As Tad mentioned, there are at least a half dozen drawbacks (and some potential huge threats) to owning actual real estate in you IRA. In addition to his great advice, there are a very limited (and obscure) number of cutodians that actually allow this and even fewer banks that will loan money to an IRA.

I would be hesitant about this for all but the very experienced in investing, commercial real estate, and taxation (I have just ruled myself out also).

Reply to
kastnna

Im guessing Guidant is that company you are looking to open that Self Directed with. Before you Invest, I completely agree with Tad, understand that your mortage is not your only problem. If you deplete your assets in your IRA for the the real estate, you won't have any valuated assets in there to use if additional monies are needed. Just take the 10K for the primary residence out of the IRA and leave the self directed IRA's alone. I believe the only value in the "truly self directed" accounts lies in the I401k opportunities that allow for small business to use assets to build their company in various ways.

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Reply to
Retire.Right.The1stTime

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