Everything I've read from books indicates that income is treated different for appraisal purposes based on where it is derived.  

@Dustin HavilandWhat you propose would not work.The IRS rules prohibit any direct or indirect benefit between a disqualified party and the plan.The key disqualified parties include:Plan holderTheir spouseParents, grandparents, etc.Children, grandchildren, etc.The spouse of a descendantAn entity such as a business or trust where one or more of the above have control via ownership or management authority.A self-directed IRA is not a means for you to derive any income other than in the future when you take distributions from the account.  

If you purchase the property and derive positive cash flow just be sure to pay quarterly tax payments so you don't get hit with a big tax bill, and perhaps penalties next April.  

When you mentioned the buy/hold/sell costs that amount is derived with your end buyer in mind?

I constructed an APOD (Annual Property Operating Data) and then derived cash flow before taxes as well as what would be my before tax sales proceeds if I sold the property at the end of 1 year, 2 year, 3 year etc. until 10 years.

@Hem KumarIf your IRA purchases a property using all cash, it can in the future obtain non-recourse financing against that property and those funds could be used by the IRA to acquire a 2nd property.You would want to speak with the non-recourse lenders specializing in this type of lending such as North American Savings Bank and First Western Federal Savings to learn about how much equity you could pull in this type of a situation.There is no conflict with IRS rules in this type of scenario, assuming the 2nd property is also owned by the IRA and not by you personally.The use of debt financing in an IRA create exposure to taxation known as UDFI on the portion of the income derived from the borrowed money.  

All income from the property will accrue to the IRA - none to the IRA account holder.However, there is a tax known as UDFI (unrelated debt-financed income) that applies to the percentage of the income that is derived from the use of non-IRA money to grow the IRA.The tax is paid by the IRA and the net after-tax income goes to the IRA.The impact of the tax on rental income is generally not that significant.  

There are a handful of lenders that do this, including the following who operate in all 50 states.Contact them to learn about terms, rates, down payment and reserve requirements, etc.www.myiralender.comwww.iralending.comWhen an IRA uses debt-financing, the portion of the income derived from the borrowed funds is taxed as Unrelated Debt-Financed Income (UDFI).  

It is correct that you can apply a cap rate to the NOI to derive a property value.

@Bert GreenYour statements are accurate.When investing in property with an IRA, however, the evaluation to make is not necessarily how that compares to investing in property personally, but rather how that property investment compares with other investments the IRA might make such as stocks.When an IRA uses debt-financing, there is UDFI taxation on the percentage of the income derived from the non-IRA funds borrowed from the lender.