Using Self-Directed IRA

[Kyle Lake]

Hello All,

I'm looking to use a self-directed IRA to start investing in real estate. My primary goal is to watch and learn how someone else walks through the entire process so that I can move into using my own conventional lending in the future after I have built some experience.

Any suggestions on how to do this or some good companies to work with in the Houston area that specialize in walking through the whole process with their clients?

Any help is greatly appreciated.

Thanks.

[Doug McLeod]

I believe the rules prohibit you doing transactions between your SDIRA and yourself or immediate family members, so you cannot become your own conventional lender. But you might find a partner who has a SDIRA and you can loan each other money. However, if you have a tax-deferred IRA (not Roth) I would advise you not to invest with the IRA, because all your cash flows and appreciation that are tax advantaged as real estate will be regular income when you eventually withdraw them from your IRA. If you have a Roth SDIRA then all your cash flow and appreciation earnings are tax-freeing withdrawal.

You might consider cashing out your IRA (just enough for each investment you make), paying the tax and penalty, and then investing in RE so that you get all the cash flows now along with the tax advantages of depreciation and 1031 exchanges. No need to wait until you're old to enjoy the tax benefits of real estate. If you buy right, you will usually gain back the penalty amount or more in equity capture on each deal.