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Updated over 9 years ago on . Most recent reply

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Brian Jurvelin
  • Livonia, MI
10
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Would you start a new self-directed IRA to hold long term real estate investments?

Brian Jurvelin
  • Livonia, MI
Posted

I came across this BP forum post from a few years back discussing the merits of cashing out a 401k to invest in real estate. 

http://www.biggerpockets.com/forums/49/topics/7460...

There was some good discussion but the post was really geared towards people that already had 401k accounts and whether or not they should roll them into a self-directed IRA. I can see a SDIRA as a good alternative when you already have a pile of cash in a 401k and want to invest in RE instead of stocks/bonds, but does it make sense when starting from scratch? Would you start a SDIRA specifically to hold investment properties?

It seems to me like you can invest in real estate using a Roth and cash out tax free during retirement. Assuming you eventually run out of 1031 exchanges that is a better deal than holding RE in an LLC and eventually paying taxes. But I have read investing in RE using an SDIRA is restrictive and involves some red tape. Do the benefits outweigh the costs? Is the play to put some REI properties into a SDIRA for retirement and keep most outside for income before retirement? Looking forward to hearing your take on this issue!

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Travis Sperr
  • Lender
  • Denver, CO
596
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1,047
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Travis Sperr
  • Lender
  • Denver, CO
Replied

The biggest challenge in using a SDIRA to invest in RE is the amount of capital needed in the account to get going and even with a good size IRA - do you want to tie up such a large portion in one asset? Further the financing is much more restrictive - non recourse - typically 65% LTV. In the short term, doing flips in your IRA could be a great way to build an account. I just wrapped up a flip with a partner - he was able to add $30,000 tax free to his IRA account with a $55,000 investment.

Great benefits in doing deals inside a retirement account, but challenging. The benefits of real estate out side of retirement is the ability to finance. After you get a handful of deals done you will start to look at deals a little different and bring in retirement funds where you can.

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