Hi, I would like some opinions on purchasing property through an SDIRA. I'm considering it, but after researching, I discovered I would have to use a lender that would provide a non-recourse loan. This is a good thing. What threw me is that I would have to put down 60% on the property, all proceeds from the cash flow would have to go back into the SDIRA, and if I were to use any of the cashflows for my personal purpose, all the money I initially withdrew from my IRA would be taxed, etc.

The SDIRA LLC has its pros: The account would be set up through a trust account (providing anonymity) that would be the custodian, the specially crafted LLC would provide additional anonymity and be wholly owned by the IRA, etc., but I don't like the cons.

Buying a property with an SDIRA was a big thing for a while, but they become a pain to deal with. You can't change even a light bulb or you risk negating the IRA back to its inception, triggering back taxes, penalties and more.

Taking it OUT of the IRA someday is even harder: you have to pay taxes on the full realized price and with the way real estate gains, that can be a lot.

Taking RDAs when required can also be a real problem: the VALUE of the IRA drives up your RMDs but without the cash from a sale, you might not have enough to pull out.

Can you say conundrum?

I have used my SDIRA for various investments. Buy and hold is not a good fit.

Holding property directly in the IRA is full of problems. Among them is also that you can't deduct expenses or depreciate it, I think.

Much better to just use the IRA to deal with options on a property, I think.

Don't be totally turned off about trying to find a non-recourse loan. The non-recourse loan lender could be owner financing.

I thought Brad here was saying that he does this all the time and recommend it? Or am I remembering wrong?

Any input, Brad?

Sir,

I say it depends on your ambition level or what your goal is, so here is some generic advice.

#1 Don't be SNIOP'd - Susceptible to the Negative Influence of Other People. Only take advice from happy wealthy people. If I had listened to other local LLs I would never have purchased my first property!

Some good advice from my wonderful friends here but as I read I kept saying "Yea BUT you can do..."

#2 Adjust your mindset from traditional LLing to make more money.

#3 Get REAL info. Most accountants don't have a clue. My CPA does not know. Talk to my source IRA Innovations, a friend of MrLandlord company. 205-985-0860. I use them and get good advice and success. They help make sure I stay in compliance on each deal. Ask for their book. I just sat thru their webinar today. I believe it was recorded.

My living expenses are covered by rentals so I buy using my Solo401KRoth. It's rules are looser than an IRA.

I can pull out any money I invested in the account at any time because I already paid tax on it before investing it.

I recently sold a flip for $130,000 profit...tax free. Yes that money stays in the account to grow and fund the next deal. I can take it out tax free at age 59 1/2.

You don't need deductions for depreciation and expenses because the profit is already tax free.

I can hire a contractor or manager and direct what I want done, paid out of the account.

I can borrow money - I find private investors the easiest to borrow from

AND I can lend OUT money. A featured presenter at the MrLL Conference showed us how to make a TON of money by compounding a small $5000 loan out of our Roth just by pushing some paper.

If you don't need the cash right now I see it as the ideal way to own real estate or lend to the traditional hands on LLs who need loans.

Happy to discuss further.

BRAD

Hi Brad and thanks for your input. It's great advice and I appreciate you offering it. Yes, I would like to discuss further since I too was at the MR.LL conference in OH, met the Reps at IRA Innovations and sat in on the Brainstorming Exchange Session with the presenter about being a Lender, etc.

I own two properties in a SDIRA. I wish I owned more!

In answer to the objections:

"Taking it OUT of the IRA someday is even harder: you have to pay taxes on the full realized price and with the way real estate gains, that can be a lot."

This is true of ANY buy-and-hold investment. AND I avoid this by buying with a ROTH IRA. No taxes, ever.

"Taking RDAs when required can also be a real problem: the VALUE of the IRA drives up your RMDs but without the cash from a sale, you might not have enough to pull out."

I would fully expect that by that time, my rents from a paid-off property would cover this.

"I have to find a non-recourse lender." I borrowed from a family member. Private lenders are easy to find. And yes, you could potentially loan yourself the money.

"You can't do the work yourself." I bought two creampuff properties that needed very little, and hire someone to do the work needed.

"all proceeds from the cash flow would have to go back into the SDIRA."

This is true of any investment with an IRA.

"If I were to use any of the cashflows for my personal purpose, all the money I initially withdrew from my IRA would be taxed." Not sure what you mean by this. The whole idea of an IRA is you invest the money and leave the return there until you retire.

"You can't deduct expenses or depreciate it." If you're getting a tax-free return of 15% after expenses, who cares about "deducting" expenses? Depreciation simply kicks the tax can down the road and our income isn't high enough that I want to defer my taxes. Investing in a Roth IRA means you NEVER pay taxes.

Btw:

The first property I purchased in 2016 for $42K is now worth $130K. Meanwhile I'm getting a 12-15% return on my initial investment.

The second property I purchased in 2023 for $75K from a wholesaler is now worth $120K. I bought it with my own Roth IRA funds and a $35K loan. With the rental income from property #1 and this one, I expect the loan to be paid off in 2 1/2 years.

When I sell, I will have NO depreciation recapture to add to my taxes, and no taxes on the gain whatsoever.

Hi and thanks for the information.

I have a few questions and concerns' "I borrowed from a family member." From my research on the IRA website and from talking with potential SDIRA custodians, borrowing money from a family member is a prohibited transaction because they are considered a disqualified person.

Using a SDIRA will cause delays when paying a vendor/contractor. I was on a conference call last night with a custodian and they said it typically takes 3 days to pay a vendor/contractor.

"If I were to use any of the cashflows for my personal purpose, all the money I initially withdrew from my IRA would be taxed." what I meant is that if I were to access any of the funds for a personal benefit (e.g., paying a BCC bill because I used it to buy supplies, etc.) the money I rolled over would be taxed.

"You can't even change a light bulb." And you can't drive over the speed limit or you MIGHT get a ticket. I don't think I'd lose any sleep over the IRS police showing up.

You're right, but why take the chance by "driving over the speed limit when I MIGHT get a ticket." Every SDIRA Plan Advisor I spoke with (and I've spoken with 3 so far) mention me NOT doing any work.

I'm curious about using a SDIRA but want to steer clear of ANY interactions with the IRS. I've dealt with them before and they are not a nice or forgiving agency.

Sirduke, welcome!

We have one RV park and 1 investment as accredited investors held by our SDRIRA.

We use Mike Todd with IRA Innovations; he is the real deal. Please verify for yourself what I write.

**I have a few questions and concerns' "I borrowed from a family member." From my research on the IRA website and from talking with potential SDIRA custodians, borrowing money from a family member is a prohibited transaction because they are considered a disqualified person.**

Some family members are disqualified and some family members are not disqualified.

Think of a ladder with you as the middle rung. Disqualified people would be your spouse, the rungs above you- Mom, Dad, Grandmother, Grandfather, etc, the rungs below you- child, grandchild, and the spouse of any of the rungs below you child's spouse, grandchild's spouse, etc.

Sisters and brothers are not rungs on your ladder. Neither are aunts or uncles.

**"You can't even change a light bulb." Every SDIRA Plan Advisor I spoke with (and I've spoken with 3 so far) mention me NOT doing any work.**

You are correct. No worries, just hire out all the work.

**I'm curious about using a SDIRA but want to steer clear of ANY interactions with the IRS. I've dealt with them before and they are not a nice or forgiving agency.**

That is why you need to be VERY careful which company you choose. Before we found IRA Innovations, we used a major company and their "advisors" were worse than useless. They gave us false information.

1. They told us we could pay the electric bill with our personal money and then get reimbursed from the SDRIRA. WRONG.

2. They told us we were prohibited from even stepping foot on our property and would have to stand on the highway if we wanted to view our property. WRONG.

Give Mike Todd a call- we are not sponsored by him in any way.

Duke,

There are not too many people who got into real estate so that they have a job. Instead the aim is to work yourself out of job. Now I am far from working myself out of a job........but a SDIRA is an excellent project to act as a launch pad where you are doing less and getting paid more.