Investing in RE through an SDIRAs

[Thomas McPherson]

Hi all, I would like to start the conversation and hear about other's experiences investing in Real Estate through their IRA. Here is a brief explanation on how to do it.

Key Steps:

1. Set Up an SDIRA: This allows you to invest in real estate directly. 
2. Pick Cash-Flowing Properties: Your IRA receives all rental income, tax-free!
3. Know the Rules:
   • No personal use – the property can’t be used by you or family.
   • All expenses/income go through the IRA.
   • Watch for UBIT tax – some income types can trigger it.

Tips:

• Non-Recourse Loans Only: If financing, make sure it’s non-recourse.
• Diversify: Mix property types, REITs, or loans within your SDIRA.

Anyone here investing in real estate through their IRA? Drop your thoughts below!

[Greg Scott]

Quote from @Thomas McPherson: Watch for UBIT tax

1. some income types can trigger it.

I had a long conversation with an attorney that sets up SDIRAs. In his opinion the best setup to minimize taxes was a checkbook LLC in an SDIRA. However, it was obvious that if you are any good at investing you often will pay more tax by investing in real estate through an SDIRA. (Roth's being an exception.)

CPA Tom Wheelwright has a chapter on this in his book Tax Free Wealth and agrees with what I just noted.

[Thomas McPherson]

UBIT is sneaky! I dealt with it on another debt fund I used to run. Good heads up!

Also, why do you state that you will pay more in taxes? I haven't read Tax Free Wealth...yet! 

I will now that you mention it. Would you be so kind as to summarize? I assume it has to do with 1031x and/or LTCG, depreciation, and a step-up in basis at death, yes? Or am I missing it altogether?

Thanks for the book suggestion.

[John Bowens]

I like the step-by-step process, good for all SDIRA investors. 

I would add a step, that although is optional, is often used: 

Form an LLC, specifically for the use of IRA funds. IRA becomes the 100% owner of an LLC, or potentially multi-member LLC with multiple money sources, and the account owner of the IRA is the manager of the IRA owned LLC. You then create a bank account for the LLC. IRA funds LLC bank account and funds are deployed for investments and property held in the LLC.