Best Use of Self-Directed IRA

[Ann Zane]

Hi everyone! Thanks in advance for your quick help on this! My situation- I have some cash to invest ($120K right now) as well as $320K in my self-directed IRA. I have never used the SDIRA funds and for some reason am having a hard time deciding on what strategy I want to use it for/understanding what would minimize the UBIT/maximize return. I am going to be closing on a SFH this Friday (fingers crossed). It is a cost of $49K and probably needing about 10K in rehab. My question is: do I use my cash, or do I use money from my SDIRA? My question:

• Use all of the SDIRA for a flip when a good deal is found to replenish some capital being left behind in my first few BRRRRRs?
• Use $60K towards this house (refi the house on a non-recourse loan later), and then use the rest for a flip?
• Use for buying foreclosures when the "wave" hopefully hits? I am not sure the implications of using these funds for foreclosures-would love your thoughts!
• Should I look into note investing with this money? I have never done this but have read that people like this option for their SDIRA
• Should I do hard-money lending?  Again, I have never done this but have read that people like this option for their SDIRA
  
  
• Basically any guidance on what would generate the least UBIT/most profit would be greatly appreciated!
  

[Brian Eastman]

@Ann Zane

There is a simpler way to look at this. Many people like to try and fit the IRA into their mindset about personally investing in real estate. That really is not applicable.

The best use of a self-directed IRA is the investment where you have the most knowledge, and where you can therefore put the money to work in the safest and most productive manner. There is no one-size-fits all rule about best investments.

If you know rentals, flipping, or lending, then focus on that area you know best.

There are considerations about keeping things at arm's length, choosing investments that are passive vs active in nature, and some tax complexity around the use of leverage that require some guidance from a professional but can still be very profitable.  Go get that guidance from your plan provider, or if they cannot provide such, seek out a good CPA or attorney familiar with the space.

And remember, you are not comparing your IRA to your own personal investments. Rather, you are comparing your IRA in alternative assets to your IRA that was limited to the stock market.