@Brian Jasinski
There are a few other things to consider. Investing with your SDIRA must be a passive investment. That means, if a faucet needs to be replaced, you must hire it out. If it needs cleaning between tenants, you must hire it out. You, or any other disqualified persons can't be involved with anything related to repairing or updating the property. Some CPAs will advise that you hire a management company to collect rent and handle bookwork because technically, you shouldn't be involved in any of the operations... showing the property, collecting rent, etc. There are enough stiff penalties for breaking the rules (assuming you are caught) that would supersede any benefit you receive from investing through your SDIRA.
You also can't rent it to anyone in your family or use the property in any way that benefits you or a disqualified person. You can't vacation in your SDIRA owned property, use it for events, or live in it. All of those rules apply not only to you, but to any disqualified person... which is basically most of your family, and any entities owned by family members. In other words, don't think you're beating the system by renting the property to your son-in-law's LLC.
Another minor consideration is that there are costs associated with set-up and maintenance of your SDIRA. In the grand scheme of things, it's not a large expense, but still something to consider.
The pros and cons below are from an article online. I don't think Bigger Pockets will allow me to post links, but the pros and cons summarize the article well.
Pros
- Increase potential ROI of retirement savings by investing in nearly any type of asset.
- Rental property can hedge against inflation and economic fluctuations with a diversified retirement portfolio.
- Profits generated from a rental property in an SDIRA allow for tax-free growth.
- Property can be bought and sold within an SDIRA without using a 1031 tax-deferred exchange.
Cons
- Using all of your retirement savings to purchase a rental property in an SDIRA can significantly reduce diversification and increase potential risk.
- Rental property held in an SDIRA cannot be for personal use or family use (like a vacation home), including distant relatives or service providers of the SDIRA.
- All expenses must be paid for with SDIRA funds, third-party contractors must make the repairs and manage the property, and funds deposited in an SDIRA beyond annual contribution limits will incur significant penalties.
- Tax benefits, such as depreciation and operating expenses to create a paper loss for tax purposes, cannot be claimed with rental property held in an SDIRA.
I see that @Jeff Nash also referenced prohibited transactions in his reply, and that he's an accountant so he would probably have additional information to add if you wanted more details on what is and isn't allowed.
@Jeff Nash
