With a SDIRA LLC, can I purchase out of state tax liens?

Question

Hello everyone:

I would love to have my question answered.

I recently opened a Self Directed IRA to invest in tax liens in my home state, FL, but i wonder if I can go beyond Florida borders and acquire tax liens in other states.

Thank you for your time and for a clarification on this matter.

Brian Eastman · Answer

@Kent Byron

You may be mis-calculating the fees, or simply researching the wrong custodians.

The reality is that trying to invest in tax liens through an account held by a trust company as custodian is very difficult due to timing.  Any time you wish to make an investment, paperwork has to be sent to the custodian for them to process.  This does not work well in a auction environment.

The better method for this type of investing is to establish a Checkbook IRA LLC or, if you qualify as self-employed, a Solo 401(k) plan.  In either of these plans, you will hold the plan funds in a bank account of your choosing and have signing authority on the account under the umbrella of the retirement plan.

This arrangement allows you to act immediately on investment decisions, and eliminates both processing delays and transaction or per-asset fees for each investment.  In the IRA case, there is still a custodian and they are used on a one-time basis to invest the IRA into a LLC.  This puts them in the background and keeps their fees very low.  In the Solo 401k, there is no need for a custodian at all.

Because of the legal structuring involved, you will pay more up front for such a structure, but the operating costs will be very low over time, so you generally come out ahead as compared to a custodian.  More importantly, you will actually be able to do this type of investing efficiently.

Mark Nolan · Answer

@Juan Carlos Poza

Yes an IRA can be invested in tax liens outside your state. You could even invest the IRA an in an LLC where the sole member is the IRA and you are the manager of the LLC. This generally reduces custodian fees especially if you process a large number of investments. The investments would be owned by the LLC not the IRA.

Dmitriy Fomichenko · Answer

@Brie Schmidt thank you for the mention!

Juan, with self-directed IRA you can buy tax liens in any state, there aren't any restrictions. Regarding legal standing in the state is something different as Brian mentioned and you should consult with the expert on this.

Brie Schmidt · Answer

@Dmitriy Fomichenko should be able to answer your question

Bob Malecki · Answer

Unless your SDIRA custodian has any restrictions, I don't see any problem with buying out of state.

Bob

Ned Carey · Answer

Some online tax auctions work via an ACH debit. Make sure your custodian can do an ACH debit.

The alternative is an LLC owned by the IRA which can have it's own bank account. The ACH debit can come from that account. That then brings up the issue of registering the LLC to do business in the state in question. My guess is with a national bank that has branches in the state in question and if you only collect interest, it will not be a problem. However if you have to file a foreclosure case then the LLC would need to be able to do business in the state where the foreclosure is filed. That may be a simple issue or complex.

Kent Byron · Answer

Thank you everyone for all the great information you share on BP. I'm intrigued by the idea of moving savings from my current brokerage IRA account over to an SDIRA so I can invest in real-estate secured investments instead of equity. One thing I'm having trouble computing is that, according to the fee schedules I've seen on quest and other custodians, the fees for each item you own within the SDIRA are the range of $200-$300/yr per asset. That cuts out quite a bit of the cash flow from a small rental property or modest tax lien. So I wonder if I've misunderstood how the fees are calculated, or else you have to take that into account and buy larger valued assets with this method?  I do understand why the fees are higher because the SDIRA is more of a concierge service instead of wholesale like having a traditional IRA mutual fund account, but just trying to understand how to make the numbers work out for my ROI.

@Juan  and others, would you be willing to share the details on how it worked out when you bought tax liens within your SDIRA? Specifically the custodian's fees for acquiring and holding the certificate. Thanks very much!

Juan Carlos Poza · Answer

Thank you Bob and Brian for your quick responses, they are very appreciated.

Brian Eastman · Answer

@Juan Carlos Poza

Let me start by stating that this should be a question for your plan provider.  Any quality firm providing the IRA LLC program should provide you with access to support for this type of basic question.

At issue is whether the LLC is "conducting business" in the second state and therefore would require registration in that state to be compliant with state law and to have access to the courts of the state.

Generally, investing in tax lien certificates is not something that would be considered "doing business", but rather just paper investments.

If your LLC seeks to foreclose on a certificate, or will take title to real property in the state, then you would likely need to have local state registration.  You could register the exiting LLC as a foreign entity to do business in the state should this circumstance arise.

With a SDIRA LLC, can I purchase out of state tax liens?

Most Popular Reply