NationStates Jolt Archive

I was thinking about converting a portion of my 401k and 403b accounts to a Self-Directed IRA for the purpose of buying real-estate. Now is a great time to buy, especially with CASH.

I read a decent article (http://www.businessweek.com/magazine/content/06_06/b3970114.htm) in Business Week about it, but I found that my credit union won't be a custodian for them.

Do any of the financial wizards have practical experience with a custodian that they would recommend?

Any comments on self-directed IRAs in general?

Irish Republican Armies?

Irish Republican Armies?

I hear its a good way to blow all your money away

Stay away from Bank of America, they've fucked me over too many times.

Stay away from Bank of America, they've fucked me over too many times.

hes buying property at the start of a housing crash maybe he wants to get fucked

My family bought a house almost 10 years ago for just over 100K. At the peak of the bubble, it could have sold for 3x that sum. It's still probably "worth" 200-250 K $. This is not the time to buy real estate - get a DeLorean, buy 10 years ago, and sell 5 years ago.

*edit* fixed numbers. Was trying to do too many number-crunching tasks at once when I posted this.

hes buying property at the start of a housing crash maybe he wants to get fucked

Is it the beginning of the housing crash? It seems to me that buying when everyone is freaked the fuck out for cheap and then selling when they later realize they still need a house sounds about right....I mean, someone will be buying, someone is always buying.

My family bought a house almost 10 years ago for just over 100K. At the peak of the bubble, it could have sold for 3x that sum. It's still probably "worth" 2-2.5 K $. This is not the time to buy real estate - get a DeLorean, buy 10 years ago, and sell 5 years ago.

I'll buy your house if it's only 2-2.5k

Didn't the Self-Directed IRA disband in 1996?

hes buying property at the start of a housing crash maybe he wants to get fucked

My family bought a house almost 10 years ago for just over 100K. At the peak of the bubble, it could have sold for 3x that sum. It's still probably "worth" 2-2.5 K $. This is not the time to buy real estate - get a DeLorean, buy 10 years ago, and sell 5 years ago.
We still may be on the downward slope into the bottom of the market, but I think this is a great time to buy. I'm not hampered by bad credit or the need to get a loan. I'm just as sure that the right seller will cut a chunk off the sales price if I tell them I'm just going to write them a check.

Anyhow, it's buy and hold, rental property. The way I understand IRA investments, I can't even think about using it for personal purposes without our IRS sticking it to me, i.e. calling the whole investment an early withdrawal from the IRA.

Didn't the Self-Directed IRA disband in 1996?

I don't know. I thought it was still available. Smunkee, do you know anything about that?

I don't know. I thought it was still available. Smunkee, do you know anything about that?

He's talking about an Irish terrorist group.

You are talking about an Individual retirement account, they are still available, and they are still risky and they are still clouded with lots of random rules.

I don't know. I thought it was still available. Smunkee, do you know anything about that?
*coughs* IRA splinter groups joke *cough*

I was thinking about converting a portion of my 401k and 403b accounts to a Self-Directed IRA for the purpose of buying real-estate. Now is a great time to buy, especially with CASH.

I read a decent article (http://www.businessweek.com/magazine/content/06_06/b3970114.htm) in Business Week about it, but I found that my credit union won't be a custodian for them.

Do any of the financial wizards have practical experience with a custodian that they would recommend?

Any comments on self-directed IRAs in general?

I have a self directed SEP-IRA. My wife has a typical 403(b) where she chooses what mutual funds to invest in based on some list given to her by the outfit that manages the 403(b) for all of the employees.

I like the flexibility of my SEP-IRA. I cannot say anything bad about it at all. I have always been curious whether my wife can have someone else serve as the custodian of her 403(b) and if she can self direct her account. I would love for her to be bale to do so because I like Vanguard finds and Vanguard funds are not one of her options.

If you want to invest in real estate in a self directed IRA, there are a lot of restrictions. You cannot use your IRA for a down payment and you cannot mortgage the property. There are use restrictions and possibly others. If you mess up, you just incurred big tax troubles. Be careful and know what you are doing before you invest in real estate outside of a REIT in your IRA.

Didn't the Self-Directed IRA disband in 1996?
Yup, but a splinter group, the Real Self-Directed IRA, refuses to lay down its accountants peacefully.

He's talking about an Irish terrorist group.

You are talking about an Individual retirement account, they are still available, and they are still risky and they are still clouded with lots of random rules.

*coughs* IRA splinter groups joke *cough*
You know, if I had a shred of shame, I'd be turning red... :)

I have a self directed SEP-IRA. My wife has a typical 403(b) where she chooses what mutual funds to invest in based on some list given to her by the outfit that manages the 403(b) for all of the employees.

I like the flexibility of my SEP-IRA. I cannot say anything bad about it at all. I have always been curious whether my wife can have someone else serve as the custodian of her 403(b) and if she can self direct her account. I would love for her to be bale to do so because I like Vanguard finds and Vanguard funds are not one of her options.

If you want to invest in real estate in a self directed IRA, there are a lot of restrictions. You cannot use your IRA for a down payment and you cannot mortgage the property. There are use restrictions and possibly others. If you mess up, you just incurred big tax troubles. Be careful and know what you are doing before you invest in real estate outside of a REIT in your IRA.
Yeah, I've got to get my accountant out of her summer hibernation.

If you want to invest in real estate in a self directed IRA, there are a lot of restrictions. You cannot use your IRA for a down payment and you cannot mortgage the property. There are use restrictions and possibly others. If you mess up, you just incurred big tax troubles. Be careful and know what you are doing before you invest in real estate outside of a REIT in your IRA.

so youre saying that he'd have to put his money into one of those real estate investment funds?

are those making money now?

Didn't the Self-Directed IRA disband in 1996?


There was only one of them, so technically no, but politically yes.

I was thinking about converting a portion of my 401k and 403b accounts to a Self-Directed IRA for the purpose of buying real-estate. Now is a great time to buy, especially with CASH.

I read a decent article (http://www.businessweek.com/magazine/content/06_06/b3970114.htm) in Business Week about it, but I found that my credit union won't be a custodian for them.

Do any of the financial wizards have practical experience with a custodian that they would recommend?

Any comments on self-directed IRAs in general?

I'm not a wizard, just a secretary, but here's my more-or-less standard spiel to anyone who asks me this question:

Congratulations on having saved enough that you're able to buy good-quality real estate, in cash, with 10-15% of your retirement savings. Any greater percentage than that's not a good idea, any more than investing more than 10% in a single stock would be.

Since real-estate-in-an-IRA is an accounting headache as well as a potentially wise investment, you'll have to find a custodian that specializes in it. The only one I have any experience with is Entrust. I've never worked for them, or with them for a particularly long period of time, so I can't quite say that I recommend them, but dealing with their customer service / back office gave me the strong impression that they knew what they were talking about.

The fees quoted in the BW article are comparable to what I remember Entrust and FiServ were charging, plus whatever the annual appraisal will cost. (You'll generally need an annual appraisal because the custodian needs to supply the fair value of your IRA to the IRS every year. You may be able to use some actuarial depreciation formula to come up with a yearly value after the initial appraisal, but that's a question for your accountant.)

I also suggest that you compare the total fees involved (cost to purchase plus annual fees) to other real-estate investments, such as a professionally-managed portfolio of REITs, or a private-equity investment with a real-estate component. While the cost of such managed investments are often higher than the cost of direct ownership, that's not always the case, especially if you can negotiate a good fee from the custodial firm / your financial advisor.

/end spiel.

so youre saying that he'd have to put his money into one of those real estate investment funds?

are those making money now?
No, just that there are a lot of random rules about investing in real property. The biggest one that I know of is that you can't invest in property that you use personally. My plan was to invest in several 4-plex apartment buildings. I don't plan to use any, but rent them to college students instead. I don't think I should even let my daughter live there, as it might be construed as personal use. Then the whole investment becomes subject to tax and penalties as an early distribution.

I'm not a wizard, just a secretary, but here's my more-or-less standard spiel to anyone who asks me this question:

Congratulations on having saved enough that you're able to buy good-quality real estate, in cash, with 10-15% of your retirement savings. Any greater percentage than that's not a good idea, any more than investing more than 10% in a single stock would be.

Since real-estate-in-an-IRA is an accounting headache as well as a potentially wise investment, you'll have to find a custodian that specializes in it. The only one I have any experience with is Entrust. I've never worked for them, or with them for a particularly long period of time, so I can't quite say that I recommend them, but dealing with their customer service / back office gave me the strong impression that they knew what they were talking about.

The fees quoted in the BW article are comparable to what I remember Entrust and FiServ were charging, plus whatever the annual appraisal will cost. (You'll generally need an annual appraisal because the custodian needs to supply the fair value of your IRA to the IRS every year. You may be able to use some actuarial depreciation formula to come up with a yearly value after the initial appraisal, but that's a question for your accountant.)

I also suggest that you compare the total fees involved (cost to purchase plus annual fees) to other real-estate investments, such as a professionally-managed portfolio of REITs, or a private-equity investment with a real-estate component. While the cost of such managed investments are often higher than the cost of direct ownership, that's not always the case, especially if you can negotiate a good fee from the custodial firm / your financial advisor.

/end spiel.

Good advice. It's right along the line my accountant gave me before I started to get serious. I'm looking at using about 20% of a 403b to get this started. But I keep thinking that good real estate is a no-lose proposition right now.

No, just that there are a lot of random rules about investing in real property. The biggest one that I know of is that you can't invest in property that you use personally. My plan was to invest in several 4-plex apartment buildings. I don't plan to use any, but rent them to college students instead. I don't think I should even let my daughter live there, as it might be construed as personal use. Then the whole investment becomes subject to tax and penalties as an early distribution.

To be safe, not only can your daughter or other family members not live there, you can't be personally involved in rehabbing or renting the buildings because then you're providing services to your IRA. Obviously you can avoid this by hiring a property manager. I believe you don't necessarily have to pay the property manager out of your IRA funds, but I'm not sure.

I'm looking at using about 20% of a 403b to get this started. But I keep thinking that good real estate is a no-lose proposition right now.

EDIT: Didn't see your last post, hence the awkward edit! One last thing to consider is buying the buildings but not in your IRA. Obviously you don't get the tax deferral, but if you have enough scratch to put down so you can qualify for a good mortgage it might be a better deal, with rates being pretty low right now. As the investment professionals say, "Why risk my own money when I can risk the bank's?" :)

EDIT: Didn't see your last post, hence the awkward edit! One last thing to consider is buying the buildings but not in your IRA. Obviously you don't get the tax deferral, but if you have enough scratch to put down so you can qualify for a good mortgage it might be a better deal, with rates being pretty low right now. As the investment professionals say, "Why risk my own money when I can risk the bank's?" :)
The purpose is mainly for tax deferral, but that's why I'm going to sit down with my fee-only CPA/CFP and work out the details. There's nothing like a conservative accountant to put a damper on a rash plan.

so youre saying that he'd have to put his money into one of those real estate investment funds?

are those making money now?

I am not saying he has to invest in a REIT. If he follows the rules very closely he may buy individual investment real estate properties. However, I think that given the fact that REITs are a good passive investment and are much easier to use IRA money to invest in, the REIT is the best way to go.

Some of them are making money now. They pay dividends often. Some are down in value which is great for the buyer. I cannot tell your voice tone in a post but you should be excited when a long term investment is temporarily on sale. Most of us are young enough to have at least 15 years before retirement and we should be looking for long term investments such as REITS.

Stay away from Bank of America, they've fucked me over too many times.

Absolutely they are fucked. They stole 10k from me one time. Took almost a year and a half and about half as much in lawyer fees to get it back. The money just magically disappeared one day. Into thin air I suspect.

Good advice. It's right along the line my accountant gave me before I started to get serious. I'm looking at using about 20% of a 403b to get this started. But I keep thinking that good real estate is a no-lose proposition right now.

It is possible but you are old enough and as far as I can tell smart enough to pick and choose very carefully what you are getting yourself into.

I am not saying he has to invest in a REIT. If he follows the rules very closely he may buy individual investment real estate properties. However, I think that given the fact that REITs are a good passive investment and are much easier to use IRA money to invest in, the REIT is the best way to go.

Some of them are making money now. They pay dividends often. Some are down in value which is great for the buyer. I cannot tell your voice tone in a post but you should be excited when a long term investment is temporarily on sale. Most of us are young enough to have at least 15 years before retirement and we should be looking for long term investments such as REITS.

REITS can be a great investment. I have studied these for a long time. Four investors and myself have plans of starting one. We or I should say two of the partners have done the preliminary work into getting it started.

The purpose is mainly for tax deferral, but that's why I'm going to sit down with my fee-only CPA/CFP and work out the details. There's nothing like a conservative accountant to put a damper on a rash plan.

Accountants have saved my ass before. At least you have a good head to sit down and listen to what they have to say. Some obvious things can be looked over when potential dollar signs are floating around in the head.

No, just that there are a lot of random rules about investing in real property. The biggest one that I know of is that you can't invest in property that you use personally. My plan was to invest in several 4-plex apartment buildings. I don't plan to use any, but rent them to college students instead. I don't think I should even let my daughter live there, as it might be construed as personal use. Then the whole investment becomes subject to tax and penalties as an early distribution.

There is ways to hide personal use. Through rental agreements in others names and such. They then sublet it back to you. However that is a bit dodgy and if you don't want the worry don't do it.

Is it the beginning of the housing crash? It seems to me that buying when everyone is freaked the fuck out for cheap and then selling when they later realize they still need a house sounds about right....I mean, someone will be buying, someone is always buying.

Consider one thing. Interest rates almost have to go up. The effects on housing will make the slowdown now look like good times.

REITS can be a great investment. I have studied these for a long time. Four investors and myself have plans of starting one. We or I should say two of the partners have done the preliminary work into getting it started.

You are going to start one? Aren't there like SEC licensing issues? Why not just buy shares in one?

Consider one thing. Interest rates almost have to go up. The effects on housing will make the slowdown now look like good times.

I just bought a cheap residence with a very low interest rate. I should be able to pay it off inside of 5-8 years. The rate of rentals in this area hasn't dropped as much as housing prices. I could move out right now and make triple my mortgage payment and still have a competitive rental.

I just bought a cheap residence with a very low interest rate. I should be able to pay it off inside of 5-8 years. The rate of rentals in this area hasn't dropped as much as housing prices. I could move out right now and make triple my mortgage payment and still have a competitive rental.

Alright you did a good move. What I was referring to is resale value later if interest rates go up and they probably will. As for the rental market it is as strong as ever. People ask why I don't sell properties more often..... ;)

You play your cards right you will be a millionaire. Keep buying smart properties and renting them. I made my initial money this way. I started out of the military with barely a pot to piss in. We are fairly well off now and it took about 18 years. So by the time you are in your 40's you could be worth millions.

You are going to start one? Aren't there like SEC licensing issues? Why not just buy shares in one?

Yes there are SEC regulations. I have started a company before with part of this investor group. So we have researched going public before. There is a bit of hoops to jump through. As for buying shares I want a director role. Also this will be a completely private REIT between 4-6 families.

Irish Republican Armies?

That's what I thought this topic was about.

*is disappointed, walks away*

Yes there are SEC regulations. I have started a company before with part of this investor group. So we have researched going public before. There is a bit of hoops to jump through. As for buying shares I want a director role. Also this will be a completely private REIT between 4-6 families.

Why not just start a corporation or partnership that invests in real estate. I fear that you guys are making things far too complicated if that is all that you are doing.

Why not just start a corporation or partnership that invests in real estate. I fear that you guys are making things far too complicated if that is all that you are doing.
To re-cap what's happened over the last few weeks, I did just about what you suggest. My accountant made me change my mind after explaining how much work I would have to do, or how much I would have to pay her to do for me, regarding the IRA.

So I decided to buy real estate, but to use someone else's money. I got a big loan against some of my rental property, formed a partnership, and we bought a block of townhouses in a college town. We have them 80% (4/5) rented with a few weeks still to go until the term starts. 80% generates positive cash flow on the deal and we're both happy.

I was thinking about converting a portion of my 401k and 403b accounts to a Self-Directed IRA for the purpose of buying real-estate. Now is a great time to buy, especially with CASH.

I read a decent article (http://www.businessweek.com/magazine/content/06_06/b3970114.htm) in Business Week about it, but I found that my credit union won't be a custodian for them.

Do any of the financial wizards have practical experience with a custodian that they would recommend?

Any comments on self-directed IRAs in general?

How did this post come back after going away for a few weeks? It sounds like you are doing it right. I enjoy my real estate partnership which is probably a lot smaller than what you are doing. I like it because if there is a problem with maintainence or whatever I am only exposed to liability in proportion to my interest in the partnership. You need to have a similar style with all of your partners assuming that you never want to force an issue and put a matter to a vote.

How did this post come back after going away for a few weeks? It sounds like you are doing it right. I enjoy my real estate partnership which is probably a lot smaller than what you are doing. I like it because if there is a problem with maintainence or whatever I am only exposed to liability in proportion to my interest in the partnership. You need to have a similar style with all of your partners assuming that you never want to force an issue and put a matter to a vote.
I thought the contributors deserved a conclusion. That's something we don't see on many "Advice" threads.