No. of Recommendations: 7
Hey Kathleen:
I, too, had been researching this for some time and finally, back in December, my wife and I took the plunge. We went with a company called American Pension Services. They are the custodian of the IRA account and provided us with a wealth of information. We had the account funded from some of our rollover IRAs within a few days (it depends on the brokerage firm -Schwab took about 3 days to get the money into the account, whereas Wells Fargo took about 2+ weeks). At any rate, within a couple of weeks we made our first purchase -a small duplex rental property. Long story short, it took a couple of weeks to close the deal (home inspections, etc) and then to set up an account with a property management company to manage it. All-in-all, we are netting about 11% ROI including payment of taxes, management fee(8% of collected rent per month -which equals about 1% off the ROI), and allocating about 12% of the collected rents per month for future repairs.

A couple of things to consider before taking the plunge yourself:

1. Shop around -every company offers different things and different fees. American Pension Services worked for us -but they may not work for you.

2. There seems to be a "gray area" concerning whether or not you can manage the property yourself. I have read articles that say you can manage the property just like you do any investment -you just can't pay yourself for doing it and nor can you receive rent checks made out to you. Because it was a gray area with the IRS we decided to take the conservative approach and hired a property management firm -just to be safe. For about 8.5% of the rent per month, the PM firm screens the tenants, advertise, collect rents, field the maintenance phone calls, arrange for maintenance to be performed (with our prior approval), levy and collect late charges, and evict as needed. For us, this seemed worth it -especially since their labor rates are cheap -and all workers are licensed and insured. We screened a lot of PM companies before settling on the one we chose, so again, I would urge you to shop around before signing with someone.

3. Regarding the IRA-LLC. When we purchased the duplex, we wanted to do some repairs and upgrades. We had 2 options: Every time we wanted to do buy something from Lowe's or Home Depot, or contract with someone we had to get a bid in writing and then submit a check request for the work to the custodian (APS). They would process it and send out a check promptly -but it was very cumbersome to work this way. For example, you see some tile that would look great in your rental's bathroom. You figure out how much you need, get Lowe's to prepare an estimate, submit that to your custodian and get a check for the exact amount. You get the check a few days later, go to buy the tile, but it's on sale now......but you have a check for the exact amount of the pre-sale tile.....and there is no easy LEGAL way to get the difference back (cash refund is definitely out of the question). So, you cancel the check, submit a new check request for the exact price of the tile (sale price), get the check, go back to Lowe's.....and the tile is not longer or sale....or worse, sold out. There are a host of these types of scenarios that come (came) up. So, after this issue came up for like the 5th time, we decided to set up an IRA-LLC. It cost about $1,000 to set up (not cheap) -but it allows you full checkbook control. You see tile you want, you buy it on the spot using the business account owned by the IRA-LLC. You want to purchase a house, or any other investment, and you write a check on the spot. No waiting for the custodian to write and mail a have full checkbook control.

So, that's our experience in a nutshell. We are still learning as we go, but with each new step (setting up the Self-directed IRA, setting up the IRA-LLC, working with a law firm, working with a PM company, looking for contractors to do specific repairs, etc) we are gaining valuable knowledge as to how to get better -and consistent returns on our money even in these uncertain times.

Best of luck!

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