What's good about RE investing in a self-directed IRA? - Posted by SHearne

Posted by Ewing(Atl) on January 19, 2000 at 01:21:41:

>Anyway to legally stick it to the IRS gives
me a chubby.

LMAO!!! You should copyright this line, and sell it as a bumpersticker. It could be bigger than “Ask Me About My Grandchildren”, “Honk If You’re Horny”, or the dreaded “Baby on Board”!

Ok, maybe not. But, I got a kick out of it. Thanks for the laugh!


What’s good about RE investing in a self-directed IRA? - Posted by SHearne

Posted by SHearne on January 18, 2000 at 17:23:04:

Each year my wife and I put our maximum $4,000 ($2,000 for each of us) contribution into an IRA. This year I really wanted to buy an income property in my IRA and manage it through my mgt company.

I thought It was a really good idea until I started researching how to go about it. After reading about it on Entrust’s Website (link at top of page), my thoughts now are that It’s not worth the trouble.

Because of:

1)Prett High Fees
2)Administrative hassle (IRA has to buy the prop, all paperwork/money has to go through IRA administrator, etc., etc., etc.)
3)Lots of rules and restrictions about what I can and can’t do (it’s really confusing)
4)Alternative investments such as securities based IRA’s are doing really good
5)My accountant doesn’t even understand how to do it?

Do others agree with this conclusion? Why or Why not? Maybe I don’t know the whole story.

Thanks for your input…


One more time - Posted by Chris (FL)

Posted by Chris (FL) on January 18, 2000 at 22:38:24:

If you’re “cranking up your buying machine” you’ll come across individuals that want debt relief.

So you rent now , buy later - with right to sub-lease ( also known as a sandwich lease option). I’m no expert , but I’m told by those in the know that this can be done in a self directed IRA.

So on a house , it would not be unheard of to make unreal % gains ( albeit on a small scale ) without paying taxes – legally.

Do some of the folks that frequent this board make 20k from such a deal (L/O) on a 100k property ? … Why not do some of these in an IRA?

Have a talk w/the guys down @ Mid Ohio and find out the particulars. Then talk to a good attorney and/or accountant that understands CRE to verify.

I’ve posted this again because I think it’s such a great idea. Anyway to legally stick it to the IRS gives me a chubby.

Excellent Question! - Posted by David Butler America’s Note Network

Posted by David Butler America’s Note Network on January 18, 2000 at 21:21:50:

Albert Einstein said “The power of compounding is truly the eigth wonder of the world”!! (that and a pair of pants in his case, right!) Anyway, that’s the whole premise of IRA investing in the first place. And some of the hassles you describe, will follow any self directed plan, whether you use it to purchase real estate, notes, leases, rare coins, etc. OR securities, mutual funds, options, etc. It is the self directed part that results in the hassles, not the investment vehicle (for the most part).

The real decision should be based on what you are most comfortable with. It’s a no brainer to some extent, with the 10 year bull run we’ve had in the financial markets. You can pop your dough in a basket of mutual funds, and practically go to sleep (IF… you pick the right funds).

Food for thought - as of November 30, 1999, there were 13,492 registered mutual funds. However, of these, only 879 have a 10 year track record, and only 49 of those beat the S & P 500 over 1 year, 3 year, 5 year, and 10 year intervals.

The litmus test is what your stomach does when the market is roiling, or turns bearish. If you are very risk tolerant, and have a strong stomach, history has proven that long term equity investing will give you about 11% annualized, regardless of ups and downs. With some additional management skills in handling your own accounts, or with strongly managed mutual funds, you can get closer to 17%. And the truth is, the current bull run may be the harbinger of a new paradigm on Wall Street. The new standard may rise to 20% or higher, barring any future crashes. Time will tell.

For the alternative investor, the objective is to gain more predictability and stability, and hopefully net out 15% or better, with out the roller coaster ride that Wall Street has historically provided up to this point in time.

However, most forms of alternative investing do require more hands on knowledgable and shepherding, with or without using self directed retirement plans. The nice part is, making the effort to perform these duties helps give you the knowledge and hopefully the discipline, to keep a sharper eye on protecting your nest egg - this factor alone is enough to justify the approach of using a selfdirected retirement plan for broadening your portfolio. You might want to consider opening a whole new plan for that endeavor, if you are so inclined, and leave your current plan in place, to provide yourself with a little more diversification.
Hope this helps, and Best of Luck

David Butler, VP Broker Relations

Re: What’s good about RE investing in a self-directed IRA? - Posted by chris

Posted by chris on January 18, 2000 at 18:12:43:

You might also want to check out Mid-Ohio at the banner at the top of the page.


Re: What’s good about RE investing in a self-directed IRA? - Posted by Ray S(FL)

Posted by Ray S(FL) on January 18, 2000 at 17:54:09:

Well think about it like this. If you own the property in your IRA then all profits are either non taxed or deffered. The value of the property grows, your IRA grows and you did not contribute anything. If you decide to sell in a few years then your IRA just made a profitable investment (tax free). As a matter of fact you could do this and stop contributing your 2k a year and your IRA could grow by leaps and bounds.

I think all of your problems that you have outlined in your post would be solved if you got #5 handled first. That is find an accountant who understands how to do it and let them worry about all those other details.

It may be a pain to do the first one but, I definetly think that it is something to seriously consider.

Good Luck.
Ray S(FL)