Self-Directed Roth - Posted by Bryan

Posted by Bryan on August 27, 2003 at 19:38:26:

Wow. Thanks for the info. Can you provide more on the RE options buying and selling?

Self-Directed Roth - Posted by Bryan

Posted by Bryan on August 24, 2003 at 23:06:14:


Would someone be able to give examples on how to purchase your first property through a Self-Directed Roth? I’ve recently opened an account and have contributed the max of $3,000. What are some ways that I can leverage that small amount of money to acquire real estate? Thanks.

  • Bryan

It’s not as easy as you might hope, but … - Posted by JP

Posted by JP on August 24, 2003 at 23:38:16:

Leveraging money in your self-directed Roth is not as easy as you might think, unfortunately. First of all, any deals involving debt-financing are subject to UBIT (unrelated business income tax) in which case you might as well just do the deal in your own name. Be careful of flipping (whether it’s properties, notes, options, etc.) in your IRA otherwise it can be classified as a dealer in which ALL your deals will be subjec to UBIT, regardless of debt financing. Generally speaking you probably don’t want to actually own any real estate in your IRA … from what I’ve found it’s better/easier/safer etc. to stick with paper, hard money lending, etc. Unfortunately you have a long road ahead of you if you wish to learn how to do this “stuff” because there really isn’t a whole lot of good info out there, there is a lot of “gray area” and a lot of misinformation too. I hesitate to go into specifics because of the fact that there is so much gray area, and what I think is relatively conservative might be considered very agressive by another investor and/or not right for their situation. A few tips though. You can avoid the UBIT tax on a debt-financed property as long as the loan goes bye bye 1 year before you sell the property. Something to think about. Another thing you can do is buy options. Pay $1,000 for an option to buy a $320k property for 250k, and then sell the option to another investor for 20k. You just made a 2000% return on your $1k investment, and it’s all tax free in your Roth. Of course, this is money you can’t easily get at until you retire (unless you feel like paying full taxes AND penalty on early withdrawels), although there are some creative ways around that too. But that’s a whole separate post, and also gets pretty “gray” and might be too agressive for a lot of investors. I think the bottom line is you have to ask yourself how far you want to push the envelope i.e. you can do anything you want really, but what happens if you get audited? What are the odds of getting audited? What is the risk/reward? Do you have previous rulings or case history to back up your position? etc etc etc