Is it worth it to convert and invest from self-directed IRA?

[Steve Corder]

I went to local REI talk on self-directed IRA investing. Do you think it is worth converting a traditional IRA and investing in real estate via that vehicle?

Thanks. Steve

[Brian Eastman]

@Steve Corder

That would be a decision you would need to make based on more detailed research. The results you get with a self-directed IRA are very much dependent on how you put the vehicle to work.

So long as you approach the IRA as a tool and properly understand its usage and limitations, it is not particularly burdensome from an administrative or cost perspective.

Where people generally find frustration is in trying to use the IRA in a means contrary to its intention, and think of this as "I am investing in real estate and here is a {difficult} form of capital to access for that purpose". That "now" kind of thinking is not what an IRA is for, and will feel very restrictive.

When one takes the correct approach of understanding that the IRA is being diversified into real estate, that the IRA is the investor, and that all of this exercise is simply a means to {hopefully} grow retirement savings for your future self more effectively than what one is doing with the IRA currently, then things fall into place pretty smoothly.

We have thousands of clients who have chosen this route over the years, and one of the main reasons we enjoy being in this business is when some of those investors chat with us and tell us how glad they are they switched the way they invest their IRA, and how much more secure they feel about their retirement years as a result.

Separately, the tax on debt-financed income is a mis-understood boogeyman of a topic.  

Completely rough example, but based on reality... Over a 5 year rental hold investment, you may pay $4,000 in total taxation and CPA costs on a deal that will make your IRA $70K+ greater return due to the use of leverage. You can choose to see a $4,000 tax cost as intimidating, or see the fact that matters, which is the dramatically better return a leveraged deal produces than an all-cash equivalent.

The bottom line is that investing an IRA in a rental property can be very productive. It can also be a good bit of work and administration. Some investors don't have the time, expertise, or desire to put the required amount of energy into building savings for their future. In that case, choosing a more passive way to put money to work would be appropriate. That could mean leaving your future exposed to the whims of the stock market, or choosing more passive alternative asset opportunities such as having the IRA be a private lender or participate as a limited partner in a professionally managed real estate syndication or private fund.