Self-Directed IRA Question

[Steve Johnson]

Good Afternoon Investors,

Is anyone out there using a Self Directed IRA to invest in real-estate? If so, what are the primary benefits? My understanding is it provides asset protection from the outside, but not from the inside in the case of a tenant winning a judgement.

Steve

[Brian Eastman]

@Steve Johnson

The potential advantage of investing in real estate with an IRA is diversifying the IRA. If you understand real estate as an asset class and can get better results for the IRA by having the IRA invest in real estate, then such an plan is superior to having 100% of your retirement savings in market-based assets.

An IRA (self-directed or otherwise) is reasonably well protected from lawsuits that stem from you. So if you go through bankruptcy or have a judgement against you stemming from a personal suit, the IRA will be shielded. The limits are determined by state law.

If an IRA owns an asset such as real property, a tenant sues, then they are suing the IRA. All assets of the IRA could be attached to in the event of a judgement. Quality insurance for the IRA is therefore a must. This exposure to liability is a reason to evaluate the use of an IRA-owned LLC to hold property. That LLC then limits the liability of the IRA and you personally in ways that a property directly held in an IRA will not.