FAQ

Are there well established companies that offer self directed IRAs?

There are several companies that offer these services and are extremely professional and reputable.  As a service, to assist we provide the following list

• American Church Trust -- www.churchtrust.com
• FISERV (Formerly Lincoln Trust Company) -- www.fiserv.com
• Entrust CAMA– www.entrustcama.com
• PENSCO Trust Company -- www.pensco.com
• Sterling Trust Company -- www.sterling-trust.com

My suggestion would be to stick with some of the largest names out there.

What can you invest in with your IRA?

The more appropriate question is what can you NOT invest in.  The IRS simply provides a list of transactions that are excluded.  These excluded items are:

• Collectibles (e.g. art, antiques, jewelry etc.)
• Life insurance
• Coins (other than U.S. gold coins)

Anything else is fair game including any type of real estate, businesses (LLC’s, Limited Partnerships, Corporations, etc.) and the list could go on for pages.  VERY IMPORTANT:  If you are told that you cannot invest in these items, that is because YOUR IRA ADMINISTRATOR does not allow it.

What is a prohibited transaction?

Many people limit their IRA investments for fear of making a prohibited transaction.  What people need to realize is that a transaction is NOT PROHIBITED if it is not part of the list above AND is not with a disqualified person.  In short, a disqualified person is you or a family member.  There are very specific, and well documented, rules that you can easily find on the internet about disqualified people.  

Can you give an example of using a self directed real estate IRA?

Suppose you found a two parcels of land that you purchased, each costing $50,000.  For lot #1, you purchased personally and paid cash and for lot #2, you purchased with your self directed real estate IRA and paid cash.  Suppose in a 9 month period, you received a spectacular gain of $20,000 per lot, or equivalently a 40% return.  For lot #1, you would have to pay taxes at your regular income rate which we will assume is 28% ($5,600 tax bill).  For lot #2, all funds are returned to your self directed real estate IRA without paying taxes (Yahoo!!!). 

Why haven’t I heard of this before? ? Is this legal?

Because most custodians do not offer truly self directed IRAs. They will only allow you to invest in their approved list of investment options. If you have an IRA at a bank, you will probably be limited to CDs; if at a brokerage firm, to stocks, bonds and mutual funds. . Investing in Real Estate with your IRA is legal. See ( www.IRS.gov) for specific guidance

Are the Notes secured?

Yes, Notes are secured by a Deed of Trust or Mortgage Note. If the borrower fails to meet his promise, you will have the right to take the property.

Can you finance real estate purchased by a self directed real estate IRA?

Yes, this done through non-recourse lending, meaning that if the loan isn't’t paid back as promised, the lender may take the IRA owned property used to secure the debt, but may not take recourse against any other assets.

How is a Self-Directed IRA with an independent administrator different from the one I have with a traditional administrator?

IRAs held by your bank are normally directed by the bank into its mutual funds or CDs and provide minimal risk and minimal return.

IRAs held by your stock brokerage company are typically directed into mutual funds and stock portfolios that are sold by that brokerage, and you are limited to those products offered by that particular brokerage.

IRAs with an independent administrator allow you to self-direct your money to any investment allowed by law. Not only are you allowed to invest in all of the products offered by the traditional administrator, you are now allowed to invest in leveraged or unleveraged real estate, trust deeds, unsecured notes, improved or unimproved real estate limited partnerships (public and private) and more.

Who actually holds the money and/or assets of my Self-Directed IRA?

Cash, title to properties and all other assets of the IRA are held by a trustee or custodian. Unlike a qualified retirement plan, the law requires that the trustee or custodian be a bank, federally insured credit union, savings and loan association, or an entity approved by the IRS to act trustee of custodian.

What should I do to get started?

To get started, for your convenience you have a couple of options. Simply call the telephone number provided on the contact page or forward your contact info via email. Since each transaction may not be the same, a representative will need to speak with you to ensure that your call is handled appropriately. We look forward to hearing from you!

Can you suggest other material that might help with understanding the use of IRAs for real estate investing?

Ira Wealth: Revolutionary Ira Strategies for Real Estate Investment (Paperback) by Patrick W. Rice and Jennifer Dirks is pretty good.  He covers a lot of the issues but unfortunately mixes a lot of real estate investing advice with what you really need to know about IRA investing.

Another excellent book on the subject is How to Invest in Real Estate And Pay Little or No Taxes : Use Tax Smart Loopholes to Boost Your Profits By 40% (Paperback) by Hubert Bromma.

Timing The Real Estate Market - Author Robert Campbell