Self Directed IRA for First Rental Property

[Shane Malloy]

I have been researching for my first rental property. I have a pretty substantial amount of savings in a rollover 401K. I have ~$40K-$50K available for investment in cash but have a substantial amount in 401K savings that I can leverage. I am exploring moving some of these retirement funds to a self directed IRA and using this for my first rental property.

I've read a few articles on BP about this but would be interested in getting others thoughts on this.  I am sure there are some folks here that have done this and I would love to hear their pros and cons.  

[Carl Fischer]

@Shane Malloy

I am a fan of the Self-Directed accounts. The substantial 401(k) you mention, are you still employed at that company? If you are, you may want to find out if they allow rollovers or partial rollovers. 

As with all things there are many pros and a few cons to a self-directed IRA investment. You will want to educate yourself on the rules, as the IRS is very strict about certain things such as prohibited people and prohibited transactions. With a SDIRA, you are in control of what you invest in. You can use your IRA to buy a property in your neighborhood, or loan funds to a real estate investor you know and trust. There are many ways a deal can be structured, and you get to choose which way is best for you. As with all IRA investments, if the IRA purchases a property, all expenses or income belong to the IRA. Another thing to be considerate of is the custodian you choose to hold your IRA, you will want to pick a custodian that is an expert and has people who can help you with questions about avoiding prohibited transactions. You will want to consider things like their speed of processing and their fees, but the quality I like best, is a custodian that is reachable, when you call or email someone always answers.