Self Directed IRA real estate investing
- Thread starter o2chim2
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I have a friend that looked in to this. His suggestion was to not bother with doing it.
Some of the issues:
RMDs
maintenance and repairs
liquidity
The real kicker was that he said something about trying to find a custodian that was willing to handle all of this. Seems there aren't very many, and from what he said it was cost prohibitive.
Some of the issues:
RMDs
maintenance and repairs
liquidity
The real kicker was that he said something about trying to find a custodian that was willing to handle all of this. Seems there aren't very many, and from what he said it was cost prohibitive.
Berkshire_Bull
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One of the biggest reasons to own real estate is the tax-advantages (not available via IRA)
If you're still not convinced, just Google "Prohibited Transactions" and that should scare you straight
If you're still not convinced, just Google "Prohibited Transactions" and that should scare you straight
Bershire Bull
What about building a spec house to sell. There are a few options of financing. 1. Get a construction loan and pay interest to a lending institution. 2. Pay for it with cash outside the IRA... don't have that much cash outside IRA. So that would require withdrawing from the IRA and paying income tax on the money....25% estimated. 3. Establishing a self directed IRA with administrator that permits real estate transactions fees would be approx. $600 annually,with all profit going back into the IRA, no tax on profit, no interest to lending institute, no income tax on withdrawing money from IRA.... What do you think about this ??
What about building a spec house to sell. There are a few options of financing. 1. Get a construction loan and pay interest to a lending institution. 2. Pay for it with cash outside the IRA... don't have that much cash outside IRA. So that would require withdrawing from the IRA and paying income tax on the money....25% estimated. 3. Establishing a self directed IRA with administrator that permits real estate transactions fees would be approx. $600 annually,with all profit going back into the IRA, no tax on profit, no interest to lending institute, no income tax on withdrawing money from IRA.... What do you think about this ??
Berkshire_Bull
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Per IRS regulations you nor family members can do no work on the property, neither you nor any family members can ever utilize the property in any way. Any violations of the above = prohibited transaction.
Any gains or rent you may make remains in the IRA meaning you've just taken something whose whole appeal is tax advantages (real estate) and turned it into ordinary income at some point in the future.
Red_y
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o2chim2 -- I'll provide some information about custodians for a Self-directed IRA...these two are usually mentioned as experienced, ethical operators who could help you set up an IRA to contain real estate assets:
PENSCO Trust Company
Client Services (800) 969-4472
Web Site www.penscotrust.com
FISERV ISS (Formerly Lincoln Trust Company)
New Business (800) 521-6974
Current Account Holders (900) 962-4238
Web Site www.fiserviss.com
I'm not as negative on the idea as the other people who have replied. I have a Roth IRA with about a $140k balance, $80k of which is in HSTRX as a hedge against passive indexing being the be-all-and-end-all. The fund has held up well in the recent market carnage, but has a paltry 0.92% yield and a YTD gain of 2.31% (yawn).
So my thinking is, what would be so bad about taking $40k out of HSTRX, putting it into a self-directed IRA, and buying a condo in a resort area that I like for cash? All the rental income would go into the Roth, and hopefully cover condo fees, cleaning fees, taxes, etc. with something left over to increase the Roth portfolio value.
In 5 years, when I'm 59 1/2, I take the condo out of the IRA (TAX FREE) and use it for my own recreation, rent it out, or sell it for what I hope will be a higher price in a recovered real estate market.
PENSCO Trust Company
Client Services (800) 969-4472
Web Site www.penscotrust.com
FISERV ISS (Formerly Lincoln Trust Company)
New Business (800) 521-6974
Current Account Holders (900) 962-4238
Web Site www.fiserviss.com
I'm not as negative on the idea as the other people who have replied. I have a Roth IRA with about a $140k balance, $80k of which is in HSTRX as a hedge against passive indexing being the be-all-and-end-all. The fund has held up well in the recent market carnage, but has a paltry 0.92% yield and a YTD gain of 2.31% (yawn).
So my thinking is, what would be so bad about taking $40k out of HSTRX, putting it into a self-directed IRA, and buying a condo in a resort area that I like for cash? All the rental income would go into the Roth, and hopefully cover condo fees, cleaning fees, taxes, etc. with something left over to increase the Roth portfolio value.
In 5 years, when I'm 59 1/2, I take the condo out of the IRA (TAX FREE) and use it for my own recreation, rent it out, or sell it for what I hope will be a higher price in a recovered real estate market.
arebelspy
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Red_y said:
If you're going to do the latter, do it before you take it out of the ROTH.
I agree that there are some advantages and of course disadvantages to real estate in self directed IRA..... Building or buying with cash from the IRA to me is a BIG positive.
Surprised that no responses yet from anyone on here that is or has done this?
Surprised that no responses yet from anyone on here that is or has done this?
Red_y
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You absolutely can not use the property yourself while it's in the IRA. That would be a prohibited transaction per IRS rules. Good layman's discussion of prohibited transactions here: Real Estate in Your IRACan you use it etc. while it is still in the IRA? Will IRA regulations permit this?
(and yet another source pooh-poohing the whole idea)
That's why in the scenario of my rental condo at the ski area above, there would be a custodian like PENSCO Trust handling the purchase, a property management company handling the rental aspect, and no use by me of the property until I've turned 59 1/2 and transferred ownership of the condo from the Roth IRA to me.
Can you use it etc. while it is still in the IRA? Will IRA regulations permit this?
As pointed out already. NO!
My advice: Run, don't walk, away from this idea.
