However, underwriters don't want to do it any more because of the exposure referenced above.Ways still exist to do it, but the explanation is too long to discuss here. 

Does the explanation seem logical?

@Alfred MainjaThat's a great question and I am sure a lot of other newbies are in need of a fluid explanation as well.

As David's pointed out, both strategies work great depending on what's going on in your real estate market-Great explanation David.

@Dawa Sherpa Thank you for that explanation.

@Belinda Lopez Thank you for the detailed explanation.

@Angelo Wong great post and explanation.

@Joseph ScoreseThanks for continued explanations....I almost feel I should have majored in financials in college.

That explanation doesn't necessarily make sense though, so it would be great if you know of official IRS documents on that subject.I also contacted the company that did the paperwork for my self directed IRA LLC, MySolo401k, who can recommended by my custodian Ira Services.

Of course the above explanation would only hold true if in fact when you first inspected the property the water was turned on at the water shut off valve.