Using IRA to fund RE Investments

[Nick Scalero]

I've posted before about self-directed IRAs and have continued to learn (but haven't bridged the gap yet).

There are a few companies out there that will help set up what is called a check-book IRA. It goes like this:
1) Set up a self-directed IRA with a company that acts as the custodian.
2) Create an LLC with yourself as the manager.
3) The LLC opens a business bank account.
4) Direct the custodian to buy shares of the LLC.
5) Buy assets in the name of the LLC.

The problem I see is that the custodian gets a cut, the company setting up the LLC gets a cut, the state gets a cut (California charges $800 min tax per year on LLCs). All this eats into the margin.

There's another company, NAFEP, who will do the same but instead of an LLC they set up a trust with you as the manager. The trust has a bank account and assets are purchased in the name of the trust. This eliminates some of the costs associated with the LLC.

The problem for me is I just don't know who to trust out there. Has anyone done business with NAFEP? Does this sound like a reasonable path to get my IRA available to fund Real Estate Investments?

[Dory Peters]

Nick,

I think you also might be mixing the concepts of a self-directed IRA with a self-directed IRA LLC. Typically, the latter is set up with checkbook control; whereas, the prior typically isn't.

Besides avoiding to pay the custodian management fees, another reason why you might want to have checkbook control is to remove the extra level of indirection. For example, you might try to tie up a deal using techniques unfamiliar to your custodian, and you might lose that deal while trying to explain the underlying mechanics to help make your custodian sufficiently comfortable. Of course, as Will mentioned earlier, I'd run those transactions past my CPA and/or attorney.