Using a Self Directed IRA

[James Cash]

Does anyone have experience with using a self directed IRA to invest in income properties?

If so, I'd love to pick your brain.

Thanks!

[Curt Smith]

We have been adding rentals 3-5/yr to both of our SD-IRAs for 4 yrs now.  We are quite familiar with the pain in the rear of working through a custodian trying to pay contractors, buy appliances.  It's a royal pain.  But do able obviously.

We have snapped! We have had it with SD-IRAs and the need for an intermediatary custodian. I'll not consider the check book style SD-IRA because my view and maybe some FUD coming from a somewhat well known SD-IRA/SD-401k Attorney saying the IRS is moving to start auditing SD-IRA holders especially if they hold real estate. I admit now I'm spreading FUD. If you've managed as many rentals as we have doing rehab and remodels, you will know first hand how difficult it is to follow all rules: no working on the property yourself (ever) never us your own funds to pay contracgtors (ever) on and on. All good rules that make sense. But if you self manage and self mange rehabs it's difficult given that contractor's 2nd job is to be a pain to pay and have them buy materials. (this was a sarcastic statment).

We are going to move our SD-IRA to a SD-401k (personal 401k). The laws (statute) that set up each are years apart and have different custodial requirements. So far my reseearch and folks I'e talked to say the personal 401k does not need a custodian. Just a Trust, EIN, and bank account and re-title the rentals into the new trust. Trust of course is properly setup per 401k regs and by an experienced Attorney in this space.

Benefits:

- you manage the check book.  No custodian.  Speed and ease of buying appliances, paying contractors, buying materials.

- Less audit risk.  The custodian is my view the main entry point of the IRS audit.  The SD-401k has a very very small foot print for the IRS to come in on.  No annual reporting, unlike IRAs.

- near zero annual fees and costs. SD-IRA custodians charge hefty fees.

But you need a viable (profit generating) company LLC or S-corp etc to hang your 401k off of. This is the catch for most new folks. If you have a bunch of real estate outside your IRA it makes sense to set up a management company even for just 5+ properties. This is where I'm at right now. Working on forming the management company, create the SD-401k, move assets, poof: a much easier life managing the properties in the tax defered account.

Anyone setup a personal 401k and hold real estate?