Self Directed IRA

Convert your Self Directed IRA (SDIRA) to purchase real estate
Diversify Your Portfolio With Real Estate
Investing inside your SDIRA

Property must be held in the name of Retirement Account

Can be any type of real estate as long as...

1. it passes the Exclusive Benefit Rule
2. there is a separation of Funds:  SDIRA must pay any expenses of the real estate and any profits of the real estate must go back into the SDIRA account.

Types of purchases: Rental property, Notes, Private Stock, LLC's, Tax Liens, Foreign property, raw land, precious metals, etc.

- No capital gains - tax free
- Positive cash flow is tax free
- No time limit for holding property
- IRA can borrow money (Leverage your investment)
- Potential to earn a larger rate of return on invested capital

Buying at the bottom of the market below or at depreciated values you are able to see stronger returns than the stock market.

In your retirement years those funds can either be taken out tax free or tax deferred depending on your retirement account

Taking a Loan with your SDIRA
- Must be non-recourse (upon default, lender can only sieze subject property only)
- Upon default, lender cannot  seize other IRA plan assets or personal assets
- Loan is to SDIRA and has to do with the property, condition, cash flow and nothing to do with you.
- Higher down payment: 40-45%...
- Not a lot of lenders to choose from that are non-recourse
- No personal guaranty - not permitted
- Can be guaranteed by a qualified third party

- UDFI: Unrelated Debt Financed Income Tax - Runing a business (Any property held to produce income is debt-financed property if at any time during the tax year there was acquisition indebtedness outstanding for the property. (ex 50% financed 50% taxed)
- UBIT: Unrelated Business Income Tax (Pub 598):  (maypbe 35% tax)

More than one Party Purchase

Father and Son buy the house.
50% Cash from dad
50% Traditional IRA has no ownership

Title Reads as: Custodian FBO Son's IRA 50%, Father 50%, TIC (Tenants in Common)

Income and Expenses everyone pays their share

What if IRA depletes its reserves?
1. Make your yearly contribution ($5,000 under 50, $6,000 over 50 annual contribution)
2. Liquidate other assets in the IRA
3. Transfer money from other retirement accounts
4. Bring on a partner (not a disqualified person)
5. IRA can get a loan (even a non recourse loan from an individual)
6. Sell the asset

Self-Direct Procedures

1. Complete the application
     - provide a copy of driver's license and copy of statement
2. Fund your account
     - annual contribution, transfer, rollover (from a previous employer)
3. Tell TPA what you want to invest

 Inside IRA

Ordinary Income (defers taxes)

Short term capital gains unable to 1031

Promissory notes (ordinary income)


Syndications that are active

Debt relief faster than amortization

High equity properties
(form of asset protection)

 vs Outside IRA

Long term capital gains with ability to 1031

Real estate with depreciation that creates an immediately USABLE passive loss

Get as much low rate high LTV financing as you can FIRST

Positive cash flowing assets w/no tax bill

No equity properties

IRS Publication 590: Prohibited Transactions
- Borrowing money from the IRA
- Selling property to it
- Using it as security for a loan
- Buying property for personal use (present or future) with IRA funds.

- No tax advantages of owning real estate
- No deduction for capital losses
- You are solely responsible for all gains or losses
- You cannot replace losses

Qualified Persons
- Aunts & Uncles
- Cousins
- Brothers & Sisters
- Unrelated friends
- Nieces & Nephews

Disqualified Person
- Fiduciary, ancestor, members of family (spouse, ancestor, lineal descendant, and a spouse of a lineal descendant)

Prohibited Transactions
- Neither you nor any disqualified people can benefit from the IRA (comes into affect after the title is recorded)
- Cannot buy, sell or exchange property between self or disqualified people
- Cannot provide goods, services or facilities
- No indirect benefits through entities.  Follow the money.

Structure of SDIRA

Custodian for the benefit of ............ (Name of SDIRA)
Best not to assign a contract.  Purchase name is SDIRA)

Custodian signs documents. / TPA: Third Party Administrator

The Process when Buying Real Estate

1. Open a self-directed IRA first
2. Shop for a property
3. IRA is the buyer
4. Custodian to sign "Offer to Purchase"
5. Submit a Buyer Direction Letter for earnest money deposit
6. Funds wired to closing from your IRA
7. Fund & Record
8. Rents are made payable to your IRA

Costs of Managing: Third Party Administrator (TPA)
$50 Setup
$275 Flat Fee per year
Up to 12 deposits free (then $10 each)
Direction letter and supporting documents for Disbursements
Expenses $10 each
Up to 6 transactions for life of account (then $25 each)
6 Wire Fee $15 


Checkbook IRA (you have checkbook control)
Attorney forms an IRA-Owned LLC "Checkbook IRA"
- IRA purchases share of a newly-formed LLC formed for this purpose
- LLC receives funds in int's checking account
- LLC follows same rules as IRA for investing

Types of Self-Directed Plans
 Traditional 401k / 457 / 403b Coverdell
 Roth Defined Benefit Health Savings Acct
 SEP Profit Sharing 
 Simple Individual K 

Getting the Best IRA Financing Possible

- Recourse to your allowed partner and non-recourse TO YOU
- Group investments
- Seller financing
- Swap debt with an non-disqualified investor
- Blended interest rate