Self Directed IRA

[Landon Kohlrusch]

I am considering rolling over my old 401k into a Self-Directed IRA to potentially use those funds to purchase my first rental property. Can anyone help explain any pros/cons with this and let me know if this is actually a viable option to get started? I have ~$100k to rollover.

Thanks in advance!

[Brian Eastman]

@Landon Kohlrusch

A self-directed IRA is a great way to diversify your retirement savings away from reliance on the stock market and into an asset class such as real estate where you can have more control over the outcomes.

To be clear, it is not "your first rental property". The IRA is the investor. The IRA pays for the purchase and all expenses of operating the property and the IRA receives all income from the rental or eventual sale of the property. You can be a "fund manager" and make that happen, so you have control over what your IRA is doing, but you cannot benefit currently such as by taking rental income personally.

An IRA can use mortgage financing or joint venture with non-related partners. Your IRA cash cannot be combined with personal cash or cash of close family members like a spouse or parent, however. So, depending on what properties cost in the land of Bucky (My neighbor played hockey at Bemidji), you may or may not have sufficient capital for rental property investing. Another option if not would be to use the IRA as a private lender to other real estate investors or developers.