All Forum Posts by: Brian Eastman

@Mark S. 

Growth Equity Group has come up before and been discussed on the following forum thread.

http://www.biggerpockets.com/forums/56/topics/1579...

Bottom line is that they may or may not offer solid real estate investment properties.  They do have considerable background in that area.  Diligence, diligence, diligence...

As far as an IRA provider, I would recommend working directly with a professional custodian or IRA LLC facilitator. Growth Equity and their affiliate Equity IRA is not an IRA custodian and is simply marketing the underlying services of a custodian. There is no benefit to this additional layer and plenty of potential down side.

@James Harper 

@David Krulac is right on the money in referring you to a CPA or Tax attorney for this matter.  A 990-T reaches into a lot of nooks and crannies and expertise is necessary.

At the high level, your assertion is correct. While the depreciation is used to reduce the exposure to UDFI taxation during the time the property is leveraged, once the debt has been eliminated, (12 months of $0 acquisition indebtedness) there is no UDFI implication. Inside of an IRA, there is no recapture of this depreciation as there is in the non-qualified realm.

@Brian Gibbons 

The proposal to JV with another investor is fine. If an IRA is involved, the key concern is avoiding any dealings with disqualified parties. So long as said doctor is not a lineal relative, that would be a non-issue.

The only thing you overlook is that if the IRA has an equity stake in a flipping transaction, that is considered a trade or business activity and comes with exposure to UBTI taxation. Sometimes that is OK and the return is still superior to other options. More often than not, it is better for an IRA to be a lender and receive a fixed interest return - which is passive and not subject to UBTI.

As an investor seeking to work with private capital, it is important that you have a good resource for self directed IRA plans to refer investor partners to. Don't try to become a tax expert yourself. Focus on the opportunity at hand and letting the partner know they could use IRA funds if they choose, then let the professionals provide tax guidance.

@Christina Phillips 

The type of plan that is best for you will depend on your situation and investment goals. If you plan to actively invest in real estate, that generally is more time-sensitive and transaction intensive - and therefore not a good fit for a self directed IRA held by a trust company. They do all the processing.

An IRA LLC or Solo 401(k) will provide you with checkbook control - meaning you will operate out of a bank account of your choosing and have the ability to execute plan transactions without going through the 3rd party custodian. An IRA is broadly applicable and could accept a rollover from a TSP. The Solo 401(k) is limited to those who are self-employed and have no full time employees other than their spouse. If you have a self employment activity and therefore qualify for the Solo 401(k), it offers several advantages over the IRA in terms of higher contribution limits, and the elimination of a tax that can apply to an IRA when using leverage such as a mortgage (UDFI).

Another advantage of the checkbook plans is that - if you work with a quality provider - you gain access to consulting not provided by IRA custodians. Custodians are prohibited by rule from providing tax or legal advice. They are purely processors and recordkeepers. An advisory firm or attorney providing a checkbook plan can provide guidance. Not all providers do this well - many are just document providers. Look for a firm that has experience with real estate investing as well as the tax & legal background to help you understand how to operate your plan in a manner that is compliant with the tax rules.

Best of luck getting started!

@Daniel Lujan 

Yes, then absolutely a reason to move.    

We use IRA Services Trust Co in California and their overall mix of experience, quality of service and low fees make them a great partner for us. Are they perfect? No. We think they are the best overall choice in the industry - at least as back-end for the IRA LLC model.

SunWest Trust in New Mexico is also a reputable firm.

@Daniel Lujan 

Unless you are dissatisfied with your current custodian, there really is no reason to change if you already have an IRA LLC in place. The custodian's role is quite limited. You can change custodians by having the LLC asset assigned to a new institution, but again, unless you had a real reason to leave your current custodian, there is typically no great benefit in doing so.

With the IRA LLC, any real support you require should be provided by the advisory firm or attorney that established the plan for you.

Self Directed IRA Services is located in Waco and would likely be the only custodian in Texas willing to hold an IRA LLC. Not all custodians are willing to do that as it eliminates the majority of their fees.

Self directed IRA's are a specialty, niche market served by a handful of smaller firms. Quality of service and experience outweigh geography by a large margin.

@Chad Hovermale 

This is a common question we hear all the time.  Comparing real estate investing with your IRA to real estate investing with personal funds is comparing apples to oranges.  The better comparison is investing in real estate (or related non-traditional assets such as notes, tax liens, etc) as compared investing in the stock market.  

The IRA is what it is, and in exchange for beneficial tax treatment comes with some restrictions.  You don't run into those restrictions in the stock market simply because it is arm's length by the very nature of being publicly traded.  If you can have better principal security by investing in real assets, and produce solid, consistent returns investing in real estate, that might be better than sending those Roth funds off to Wall Street.

While you cannot quite get to the point of using a non-recourse mortgage with this current deal, a self-directed IRA does allow you to leverage with a mortgage - not something you can do with an IRA invested in traditional stocks.  If you can use other people's money to invest your IRA in real estate, you can achieve a higher, leveraged cash-on-cash return.  There is some tax exposure in the form of UDFI that goes along with this, but your return will still be superior to an all cash purchase.

So, can it make sense to invest a Roth IRA in real estate?  Absolutely.

@Bryan C. 

Welcome to BP.  I think you will find many good resources here.

The primary challenge in your case is being remote, and the time differential that creates.  As a result, you will likely want to focus your energies at least in the near term on more turn-key investments.  Participating in a pool of lenders, real estate syndicate, or working with a quality note broker would be the least time intensive ways to move forward.  Keep an eye on minimizing your risk through the partners you choose.  Vet companies thoroughly and take the time to understand how your capital will be deployed, what the true underlying security will be, and what recourse you will have if an investment fails to produce as advertised.  If you find a provider you are interested in, check with BP members to see if anyone has experience working with them.  

A lot of the turn-key property management firms you can find through BP have solid reputations and a long history of working with remote investors, including foreigners such as Australians who see our rental markets in places like Atlanta, Memphis and Texas as superior to their local options. If a firm has an established track record with this type of client, they should be able to assist you in your situation - whether you are investing personally or with a self directed IRA.

Best of luck as you head down the road of real estate investing!

@Shannon Allex 

If you are over age 59 1/2, then you can keep the principal of a self directed IRA invested and draw off the income. If you are under age 59 1/2, then you really do not want to tap into your IRA if you do not have to, because you will pay both income tax on the amount withdrawn as well as a 10% penalty for early distribution.

The above is true whether the IRA is invested in stocks or in real estate. A self directed IRA only changes how you can invest with an IRA, but the underlying fundamentals of the IRA being a tax-sheltered RETIREMENT savings plan are not changed in any way.

There are methodologies such as a Substantially Equal Periodic Payment (SEPP) whereby you can begin taking distributions from an IRA prior to age 59 1/2 without the 10% penalty, but this is complex.

Your question is best addressed to a CPA or CFP who can discuss your current income needs, earnings, age, and retirement income needs.  They will need a more detailed picture of your situation than you can typically address via a forum such as this.  It sounds to me as if charting when/how you need to access your retirement savings is the real question.  Once you answer that, you can determine how to invest your retirement savings to maximize the returns.  Maybe those apartments will make sense, maybe not.

@Cecile Jamet 

Equity IRA is not an IRA custodian. They are marketing the services of Provident Trust as IRA Custodian. Equity IRA is likely a tool designed to draw in IRA clients for the purposes of marketing the primary business of the principals, which is Growth Equity - a real estate investment sales business.

If your desire is to invest in your own real estate deals, you should work with a direct provider - either a custodian such as Provident Trust, IRA Services Trust, etc., or a facilitator of Checkbook IRA and 401(k) plans.

If you wish to invest with Growth Equity, there may or may not be an advantage to using Equity IRA as your "customer service" front end. Generally speaking, I would not see any advantage in such a front end that comes with any cost. If you are paying more than you would in directly working with Provident Trust (one of the more expensive IRA custodians, BTW), then something is not right.

BTW, Equity IRA is brand spanking new.