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Author: PharmBoi One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76384  
Subject: Using IRA for real estate investing Date: 5/11/2004 1:16 AM
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Hi,

I'm interested in using the funds in my RIRA as a means of investing in real estate.

I know I can self direct the IRA but need to find 'an independent trustee' for the self-directed IRA.

Has anyone on the board tried this and if so, do you have a trustee you can recommend.

thanks in advance,

PB

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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40949 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/11/2004 5:57 AM
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I am about to make the same move. Open to hearing which trustee's people use and prefer.

One reason for the move is I have agreement in principle to buy a discounted note that will pay approximately 20% a year. It pays off in 5 years so I wanted something to shelter the profits.

If it matters I have a SEP IRA that I would be transferring.

John

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Author: buzman Big red star, 1000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40951 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/11/2004 9:38 AM
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www.pensco.com
www.entrust.com

These two companies specialize in self-directed IRAs.

Caveat: The fees for establishing and maintaining the IRAs are very high. Also there are additional legal and accounting costs.

You lose LTCG benefits of real estate. All income is taxed as OI.

The depreciation benefits of real estate can be minimized if held by a IRA.

It is very easy to make a mistake and be forced into paying taxes and penalties on a "distribution.

Be very careful.

buzman

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40953 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/11/2004 11:13 AM
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>>www.entrust.com

Funny, not five minutes ago I was looking at buying stock in Entrust (decided against it). They're an IT company, though, so I think you must mean another company.

Nick

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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40954 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/11/2004 11:23 AM
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Thanks for the heads up.

I am mostly thinking of discounted notes and property that I do not expect to hold. Hence the tax advantages of hold the property long term or depreciation will not apply.

Any other warnings?

John

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Author: buzman Big red star, 1000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40957 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/11/2004 12:52 PM
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Entrust Bank and Trust

www.iraplus.com



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Author: PharmBoi One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40969 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/11/2004 3:04 PM
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Since my post last night, I've scoured the 'net and by 'googling' variations of the topic, I've found many very useful sites (notably http://moneycentral.msn.com) and checked out Entrustadmin, Pensco, Sterling Trust and Lincoln Trust and have a very long, information conversation with a Pensco rep and am present on hold with Sterling.

Without having the entire amount in RIRA funds, I'm pooling funds with others in a C Corp (S corp not allowed) to buy the investment property. My investment wil be 25% of the shares in the C Corp and my retirement plan will have tenant-in-common interest in the property.

If I went alone and borrowed the monies that my partners are contributing, then I would be liable for Unrelated Business Income Tax (UBIT)on the debt-financed income.

Pensco charge a set-up fee of $50 and an annual base fee of $100 + 0.35% of market value. Entrust is $50 set up and a annnual fee % depends on a/c value with a min/max of $125/1750. Sterling Trust has a set up of $25 with annual min/max of $55/450 with a per property fee of 75/150 depending on finacing. I could not find fees for Entrust.

Hope this is useful.

PB

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Author: buzman Big red star, 1000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40986 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/12/2004 5:41 PM
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Doesn't Pensoo ( the others also) have some other fees. I thought they had some fees for arranging the property closing and document preparation.


There are some extra legal and accounting details that have to be worked out. Do exactly what Pensco advises you to do and you will be in good shape. This is the time to follow the rules

A financial planner who I know and respect highly thought using his IRA to fund a land purchase "worked out great". They sold the property to Wal-Mart<grin>.

buzman

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Author: PharmBoi One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40999 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/14/2004 12:08 AM
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I didn't enquire about these other fees but expect them to be in line with normal RE closing costs.

Pensco have a free, very informative, 48 page e-book on their site at http://www.pensco.com/RealEstateMain.asp. I recommend it to anyone who is looking into IRA investing as it gives a substantial list of what you can (and cannot) invest in. You can even fund your own start-up company! Unfortunately, it cannot be printed but they have had many calls regarding adding that feature, which they are 'looking into'.

One thing I did learn from reading it, is that my IRA cannot be more than a 25% owner of any property that the C Corp owns, which brought about the question of non-IRA cash ownership, i.e can I have another, non-IRA stake in the partnership. This has led to many 'Homeresque', DUH's!, but when I find out, I'll post, unless someone here has experienced this before (the ownership Q, not the duh!).

PB

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Author: buzman Big red star, 1000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 41010 of 76384
Subject: Re: Using IRA for real estate investing Date: 5/15/2004 8:14 AM
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The book is new. Thanks for the link.

Owning real estate in an IRA is permitted.

My concerns are as follows:

It is easy to engage in a prohibited transaction.

The level of fees are very high.

It is very complicated.

Therefore it goes against my investment philosophy of keeping it simple stupid.

In closing, the easier, simpliest, less complicated method to use an IRA to purchase real estate is to buy raw land. Anything else raises the complexity factor. My life is complex enough.

Best wishes to you. Keep us posted.


Buz Livingston

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