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Self Directed IRA Investing?

Real Estate Agent with RE/MAX Alliance

November 11, 2008 11:57 PM

Has anyone worked through one of these yet?

Thought i'd share this with other active investors and investor focused Agents. Our goal is to execute one of these, understand how to smoothly and safely conduct a Self Directed IRA investment, and then share this opportunity with our clients.

We are getting a lot of interest from investors who are very displeased with their stock market focused IRA funds.

We are under contract for a SFR using our Self Directed IRA investment, using Entrust New Direction IRA. http://www.newdirectionira.com/

We've locked up a nice brick ranch style fixer in Northglenn, CO. The goal is to rehab and then re-sell this property. We have a decent re-sell market in this are for home like this in remodeled condition for between $165k-$175k. Our purchase price is $113.5k, rehab budget of $15k.

A few interesting twists to the Self Directed IRA angle: As a buyer's agent representing myself, I can't receive a buy side commission, all reconstruction costs must be funded from the IRA, any net proceeds from the sale of the property must return to the IRA...where we hope to replace some of the "negative" from the last several months of stock market fallout.

If we were to hold this property as a rental unit, it is possible to then use a Non-recourse loan within the IRA (65% LTV) from a local bank. This offers a viable "plan b" as a rental hold if the resale market does not support the sale of this property. One nice note, since the loan is "non-recourse", it does not attach to our personal credit, and should be exempt from the Fannie Mae 4 investor property restrictions.

We would be capped at 65% of the initial contract price for one year, after that we would be able to re-finance at 65% of the ARV (After Repair Value). A little equity heavy, but given today's lending market it's not that far out of range. Sure helps the monthly cash flow numbers!

"Thinking of Real Estate? Think of Rob!"

www.RobKellyColorado.com

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Diane Daley

Caron's Gateway Real Estate - Northumberland, NH

I ahve helped a few clients purchase homes using there self directed IRA through Pensco... What a great way to invest especially now while the prices are great.

Nov 11, 2008 11:59 PM

Heather Goodwin

Licensed by the Louisiana Real Estate Commission - Shreveport, LA

Coldwell Banker Gosslee

My IRA currently owns a rental property. As you will see, once you've set up your account (mine is with Entrust here locally), it's not very complicated at all. You direct Entrust (the custodian of the IRA) who to distribute money to and they do.

You're correct that any commission you make off the buy or sale of that property must go directly to your IRA account. It's a fantastic way to grow your IRA.

The only difficulty I had was finding someone to insure the house, because nobody has ever heard of doing this. My regular insurer wouldn't insure it.

Do you mind if I ask who your lender is?

Nov 12, 2008 12:05 AM

Mark MacKenzie

Phoenix, AZ

I am begining to look into this because of the uncertainty with the equities market.

The real estate market is not perfect, but it is local - which is a good thing.

The fact that your IRA is able to get a loan and leverage the investment makes this an option that people need to at least consider when looking to grow their wealth.

Unfortunately, most financial planners won't be the ones to educate their clients about this.

Nov 12, 2008 12:22 AM

Paul Smudski

National Realty Centers - Canton, MI

Just wanted to throw into the mix that you need to be aware of the consequences of getting a non-recourse loan on a propety owned by your IRA. To the extent that you have the property encumbered by a loan (the LTV), your IRA will be responsible for paying taxes on any profits, including profits on rental income. This is because the money from the loan comes from non-tax- advantaged sources, outside of your IRA. I think the income is called UDFI -- Unrelated Debt Financed Income.

So if you get a loan at 65% LTV, 65% of your profits will be subject to income taxes, at Trust Income Tax rates. These rates tend to be higher than personal income tax rates.

If your deal is still profitable even considering this, go for it. Just be aware that this is out there.

Nov 13, 2008 02:03 AM

Self Directed IRA Investing?

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