Increase your Portfolio with a Self-Directed IRA

What is a Self-Directed IRA?

Traditional IRA accounts only allow you to invest in the products that they sell.  With a Self-Directed IRA you tell the account servicer (custodian) what you want to invest in. It might be Gold/Silver, Partnerships/LLC’s, Hold a Mortgage, or Real Estate.  Any IRA whether it be a Traditional, Roth, SEP or SIMPLE IRA can be “Self-Directed”. It depends on the Servicer (custodian) as to whether they allow one to purchase Real Estate.  Email us and we will direct you to check out a company that we know and trust.

With a Self-Directed IRA you can:

  • Increase your portfolio by buying Real Estate
  • Purchase vacant land, residential or commercial property for investment 
  • Any income (sale or rental) would flow back to the IRA, tax deferred. 
  • Any expenses, such as property taxes, association maintenance dues, etc. would be paid by the IRA.
  • Can purchase re-hab or foreclosure properties.
  • Can have partners.
  • Your IRA has to be a Self-directed IRA

 

Be sure to consult with you CPA or Tax advisor to learn the set of rules that govern the use of a Self-Directed IRA. 

What does the IRS Think about IRA Investments in Real Estate?

http://www.irs.gov/retirement/article/0,,id=111413,00.html

 

How is the property managed?  How are income & expenses handled?

The client manages the property from the extent of directing us what to do.  The client finds tenants, puts together rental agreements (which the custodian, should sign).  The key thing to remember is that the IRA owner should never deposit rental checks and then pay their IRA back.  The checks need to be written directly from the tenant to the custodian account holder of the IRA.  Similarly, the client cannot expect to be reimbursed for any expenses the property may have.  The client can either direct the custodian to make a payment from their IRA or have a third-part property manager handle expenses/income.

 

How it works: 

Case Study #1  Purchase of Vacant Land

John Smith transfers from a traditional IRA account $35,000 to a Self-Directed IRA.

John Smith directs the IRA to execute contract to purchase parcel of land in Cape Coral.

The IRA purchases the land for $30,000 in April, 2005.

The IRA directs the IRA to sell the property for $47,000 in November, 2005.

The original $30,000 plus the gain of $17,000 goes back in John Smith’s IRA’s Retirement plan tax-free.

 

Case Study #2  Purchase a Foreclosure Rental Condo

Betty Lou transfers from a traditional IRA account $275,000 to a Self-Directed IRA.

Betty Lou directs the IRA to execute contract to purchase a foreclosure condo in Ft Myers.

The IRA purchases the condo for $270,000 in June, 2009.

The IRA rents the condo for $1,500/month.

The IRA has monthly expenses (i.e. HOA Dues) for $400.

The annual tax-free gain is $13,200 plus future expectant appreciation.

 

Case Study #3  Purchase of a “Fixer Upper”

Sam Snead purchases a “pool home fixer upper” in March, 2009 with his Self-Directed IRA for $65,000.

Sam Snead then improves the property.  The IRA spends $12,500 in the process.

Sam Snead sells the property for $123,000 in April 20. ($23k down, $100k seller financed at $7%). 

The $23,000 cash and monthly mortgage payments go back to Sam Snead’s IRA’s retirement plan tax-free.

 

All information provided is for discussion purposes only, please consult your tax advisor before entering into any transactions.