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Anybody know anything about these?

I read recently in a book that you could convert an IRA into a self-directed IRA and then use it to buy an actual piece of real estate, which you could rent out at a positive cash flow, earning money and buying a piece of real estate for your retirement. And yes, if this is a Roth IRA, all capital gains are tax free. This would be a great alternative to typical 1031 exchanges or other real estate tax shelters or deferrals.

(btw - all cash flow over 1K in 1 year must be reported for income as Unrelated Business Income, or "UBI", UNLESS any amount more than $1000 is paid toward principle in a lump sum; after the property is paid off, the income is no longer UBI, and doesn't have to be reported for income, just becomes a cash flow into your IRA.)

Sounds pretty good to me, but does anyone have any comment on this?

GoodWillFooling
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Yeah, be very careful.

You can invest in real estate inside your IRA. You can also drive your car with your feet, neither is best for most people.

Disadvantages of RE inside an IRA.

1. All income from an TIRA is taxed as OI, not LTCG.

2. Expensive-The fees are much higher

3. Rules are complex. Unless you are stickler for details and organization you could create a taxable distribution with penalties.

4. Lose deprectiation of rental properties inside an IRA. Should I say harder to use depreciaion of inside an IRA?

If you were going to do it, buying raw land is preferable to rental properties.

CONSULT WITH AN EXPERIENCED ACCOUNTANT AND ATTORNEY-NOT THE GUY SELLING IT TO YOU.

buzman
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GoodWillFooling: "Self Directed IRA's/ Real Estate.

Anybody know anything about these?"


We have discussed these before. In addition to your notes, and those of the OP who has already responded, there are only a handful of IRA trsutees interested in these accounts and, more importantly, the IRA cannot be a borrower, so your account needs to be big enough to buy the property outright and fund all repairs, etc..

I have some URLs saved somewhere, but no time to search at the moment. You might try searching the archives - this board, the Tax board, and try Catherine Coy as poster, although I do not recall her nom de plume.

Regards, JAFO

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GoodWill,

here is the thread from my similar question 2 months ago.
http://boards.fool.com/Message.asp?mid=20752352&sort=whole#20767260

Pensco's e-book is informative and I found them to be very knowledgeable (sp.?) when I called.

I am using the LLC route as I have friends who are willing to invest, both retirement and non-retirement funds, which removes the UBT situation.

As the property does not have to be in the US, we have started looking at some of the student villages being built in Ireland - primarily in Galway, Waterford & Limerick. These are 4-bed, managed units, with guaranteed occupancy/rent for the academic year and they also have summer rentals.

learning together,

PB

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more importantly, the IRA cannot be a borrower, so your account needs to be big enough to buy the property outright and fund all repairs, etc..

I have read that this is not true. An IRA can borrow to purchase RE.

There are some added details concerning the debt level and how the income is handled.

Two other comments.

1. I would not suggest raw land or other undeveloped property. That end of the RE market is more difficult as there are fewer buyers and sellers, etc. Rental income and mainstream property provides more flexibility is my view.

2. I personally like investing in private notes (think mortgages or trust deeds when my IRA is the lender to someone else). None of the hassles of property management, etc with above average returns. 8% is a fine target but I certainly do better in most deals. If you are a knowledgeable RE investor you can really bump the returns higher.

John
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activeREinvestor:

<<<<more importantly, the IRA cannot be a borrower, so your account needs to be big enough to buy the property outright and fund all repairs, etc..>>>>

"I have read that this is not true. An IRA can borrow to purchase RE."

Not in any IRS document or story cited to lawful authority that I have read.

I respectfully suggest that you might be recalling incorrectly, or if you are reaclling correctly, whatever you read was incorrect in its advise.

Regards, JAFO


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JAFO,

I respectfully suggest that you might be recalling incorrectly, or if you are reaclling correctly, whatever you read was incorrect in its advise.


Lets agree that someone is making a mistake and leave it at that.

John
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