Self Directed IRA - Holding Real Estate

[Brantley]

So what would you do to protect your IRA cash from the coming inflation?

Not trying to discourage you from purchasing real estate in your self-directed IRA. Have you considered buying structured cashflows in your self-directed IRA? Depending on the length of the cashflow you purchase yields are 5-7% and many are military pensions. Don't mean to get lost in the tall weeds but I've had some clients really like them.

The person selling the cashflow is required to purchase a life insurance policy that is assigned to you as collateral in the event that the they die before the term is complete. So you have a "put" to get your principal back.

 

[Sales71]

Not trying to discourage you from purchasing real estate in your self-directed IRA. Have you considered buying structured cashflows in your self-directed IRA? Depending on the length of the cashflow you purchase yields are 5-7% and many are military pensions. Don't mean to get lost in the tall weeds but I've had some clients really like them.

The person selling the cashflow is required to purchase a life insurance policy that is assigned to you as collateral in the event that the they die before the term is complete. So you have a "put" to get your principal back.

This sounds like a win win. Is there any negatives to that plan. Never heard of it before?

 

[Robert Barney]

This sounds like a win win. Is there any negatives to that plan. Never heard of it before?

I would think the problems are whether the individual/company actually making the payments, will be able to do so.

Further, it is like buying a bond. Once you have cut the deal, the interest rate is locked in.

I am concerned with double digit inflation hitting us, and of course that will lead to double digit interest rates.

If I am in land, the land will eventually appreciate in value in line with inflation. If I am locked in at 6%, and inflation becomes 20 or 25%, then the value of my purchase is going to evaporate fast.

I think anything tied to paper value is going to be in for trouble.

Gold might have been a good investment, but the thing that puts me off of it is the government's propensity to nationalize it, just when they put the dollar into a spin.

 

[Full Throttle]

Land will only increase with inflation if wages also increase with inflation. If wages do not increase with it, so goes the ability to pay for the increased value of the land, and the price of the land will correct and not keep up with inflation. In the last major round of inflation in the 1980's, wages kept up. I'm not so sure they will be able to this time around. JMO.

 

[Robert Barney]

Land will only increase with inflation if wages also increase with inflation. If wages do not increase with it, so goes the ability to pay for the increased value of the land, and the price of the land will correct and not keep up with inflation. In the last major round of inflation in the 1980's, wages kept up. I'm not so sure they will be able to this time around. JMO.

That would apply to an commodity, right?

 

[SportsNut]

I have been a very active re investor for many yrs. The company that does the best job for IRA investing IMO is Equity Trust Company, located near Cleve, OH. Self Directed IRA, Real Estate IRA, and Allowable Investments at Equity Trust Company

They can answer any of the questions that you pose here, completely and thoroughly. I use them and have for a number of years, as well as knowing many other investors who do the same. There are others, but ETC is geared heavilty to satisfy the RE investment investor, although you could also buy any other security through them or hold those same investments in that same IRA.

There was earlier discussion about having a mtg on property held in an IRA. Not a good idea... First off the mtg cannot be one of recourse, so they are hard to get. Secondly, this creates what is called UBIT, or sometimes stated UBTI, Unrelated Business Income Tax. I would stay away from mortgaging property held by your IRA. Buy all cash, collect the rents and the yield is decent if you bought the property right.

Another aspect to consider, and this is my favorite personally, instead of buying the re, why not buy a mtg and hold it in your IRA. Either buy existing mtgs, and my fav again are defaulted mtgs, non-performing that you either negotiate a settlement to at a discount with current borrower... or that you foreclose upon and have a huge upside gain, if you bought a good one. Or you can make and originate mtgs to others; maybe short term loans, at high yields, like to re investors who buy, rehab and sell. They will often times pay 15-18% per annum and if you are dealing with a good investor there is little downside risk since their acquisition price is far below FMV.

Just a few ways to skin the cat... but I have exposure to the above many times over.

 

[Robert Barney]

I have been a very active re investor for many yrs. The company that does the best job for IRA investing IMO is Equity Trust Company, located near Cleve, OH. Self Directed IRA, Real Estate IRA, and Allowable Investments at Equity Trust Company

They can answer any of the questions that you pose here, completely and thoroughly. I use them and have for a number of years, as well as knowing many other investors who do the same. There are others, but ETC is geared heavilty to satisfy the RE investment investor, although you could also buy any other security through them or hold those same investments in that same IRA.

There was earlier discussion about having a mtg on property held in an IRA. Not a good idea... First off the mtg cannot be one of recourse, so they are hard to get. Secondly, this creates what is called UBIT, or sometimes stated UBTI, Unrelated Business Income Tax. I would stay away from mortgaging property held by your IRA. Buy all cash, collect the rents and the yield is decent if you bought the property right.

Another aspect to consider, and this is my favorite personally, instead of buying the re, why not buy a mtg and hold it in your IRA. Either buy existing mtgs, and my fav again are defaulted mtgs, non-performing that you either negotiate a settlement to at a discount with current borrower... or that you foreclose upon and have a huge upside gain, if you bought a good one. Or you can make and originate mtgs to others; maybe short term loans, at high yields, like to re investors who buy, rehab and sell. They will often times pay 15-18% per annum and if you are dealing with a good investor there is little downside risk since their acquisition price is far below FMV.

Just a few ways to skin the cat... but I have exposure to the above many times over.

Great comments and feedback. Many thanks.

I was 90% going Equity Trust. You closed the deal.

 

[SportsNut]

Great comments and feedback. Many thanks.

I was 90% going Equity Trust. You closed the deal.

The only comment that I will make about ETC is that they are a little sale-sy... They do offer great webinars of how-to-do topics like you have questioned above, but they will be marketing to you ALL the time. Once you are a customer I frankly don't see why they continue this so diligently.

Another thing that you might take a look at is they do have seminars for several days at a time that covers many of the toipics you have expressed interest in. Might be worth your while and they are usually in a decent place for like a 500 fee or so... often times 2 for 1 fees too, so if you know a friend these can be good too; fun and profit together.

If you are interested in none of the above, you can just shut that feature off too. Good luck on it.

 

[shepnerd]

Sprots Nut, I haven't been active in quite a while, but used to play with the RE thing quite a bit back in the day.

I've always thought the defaulted mortgages thing would be a hell of a market. Where do you find them? I talked to some guys a while back, but they were spread out across the country, it'd be way better to find some local to purchase.

To the OP, good ideas here. My favorite thing to do with self directed IRA & RE is to buy options. A $100 option to buy turned into a $5,000 profit in a roth IRA is pretty neat. You can do that wholesaling properties with a little effort. Sounds like you are looking to buy and hold, though, which is still a pretty good thing if you do it right. I'm with you on the devalued currency. The yahoos in Washington have really screwed things up. They have for a while, and over spending when times are good makes for a painful fix when times are less than good. It seems our current group thinks we're immune to what's happened in Europe doing the same stupid stuff...

I had mine with Mid-Ohio. Havent done much with it in 5 years or so, so dont know if they are competitive, but at the time they were very easy to work with.

 

[Sales71]

i would not have my IRA conected to my house in any other way.