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Investing In Real Estate with your Self Directed IRA

Investing in Multifamily Real Estate for the Long Term

Posted on by Rebecca Parker
Estimated reading time: 7 minutes

One type of investment property that continues to grow in popularity is multifamily housing. While many investors look toward real estate to diversify their investment portfolio and mitigate risk, they are often drawn toward multifamily properties since they are found to consistently outperform most commercial investments when invested over a long term. Multifamily can be defined as a residential property that has more than one housing unit. This refers to anything from a duplex to a townhome to a large apartment complex. Since everyone needs a place to live, there will always be demand for more housing, making multifamily an attractive alternative investment with self-directed IRAs.

Why Invest in Multifamily Real Estate?

Multifamily is consistently a steady performer. While the stock market is fast paced and tends to react quickly to outside influences, real estate turnover is slower and transactions take longer to complete, tending to be less volatile. It also tends to have high yields relative to the risk profile. Multifamily has consistency because it’s spread out among multiple tenants, and since wages tend to keep pace with inflation, that has the effect of moving the operating income line up, which makes it a good hedge against inflation. Plus, monthly rent provides a source of passive income.

Some of the main reasons investors are drawn to multifamily properties over other commercial properties are:

  • Demand – Housing is a basic human need so there will always be a demand for it.
  • Diversification – Revenue is derived from multiple leases, which broadly spreads financial risk over multiple tenants.
  • Flexibility – With the ability to stagger leases into 6 month, 9 month, 12 month, or longer, investors aren’t locked in and can shift as needed according to market conditions.
  • Enhanced Tax Benefits – Residential depreciation is shorter than commercial, which generates greater shelter of investment income.

Short-Term vs. Long-Term Investments

Short-term multifamily investing consists of opportunistic or speculative real estate development where the returns tend to be higher, but the investments tend to be riskier. It can also include value add type investments which are essentially fix and flips with apartment buildings where the property needs major work. Holding a multifamily property for 1 to 3 years can work well in a growth cycle, but successful exit is trickier and depends on timing and market conditions.

Tom Hoban, chairman and co-founder of the Coast Group of Companies said, “It (short-term multifamily) tends to not always be a great fit for self-directed IRAs because those by definition are intended to be more long-term strategies tied to protecting your retirement income, so there’s no real reason to get too aggressive on the risk side.”

With long-term multifamily investing, which Hoban likes to do with his investments, he looks for existing properties that need little to no renovation where he can ride the market for 10 years betting there will be growth in the area, or apartment buildings that are underperforming due to poor management, where he can make improvements and hold onto them for 5 to 8 years or more.

The advantage of long-term multifamily investing is it provides consistency through multiple market cycles. According to Hoban, “When we did a review over 30 years and took random 10 year slices, no matter where in the market you bought and sold it, if you held it for 7-10 years it almost always produced that same 6 or 7 yield and a 12-14 IRR (internal rate of return) at least in the markets we’re in and there are many other markets that can do that, so you don’t really have to time your market cycle. You just have to buy them right, you can’t overpay, but if you play the market cycle and you’re patient inside that and you seek that management alpha, those returns are shockingly consistent.”

Start With a Good Purchase

When investing in real estate, it is critical to start with a good purchase. While some investors may have the skill and expertise to evaluate their potential real estate investments, for many people the best course of action is to find the right general partner or sponsor who have been in the business a long time and have a solid track record finding good deals. When evaluating multifamily investment properties, the following areas should be considered.

Look for properties in supply constrained markets

Look for any constraints in the market, such as geographical, structural, political, etc. Geographical limitations could be mountains, water, highways, or anything where people are constrained to live in a certain area. Structural issues would include growth management acts where government is trying to move population density into certain areas where there are already existing utilities and infrastructure and limit it in others. That can tell you where you can get supply and where you cannot.

Look for “NIMBYisms” (Not In My Backyard). What level of appetite do people have to allow room for others around where they live? Apartment buildings come with a reputation, and not everybody wants big apartments built next to them. According to Hoban, “When new supply comes in at a price point 15% higher than the existing B+ quality apartment stock that’s already in the market, that tells you they are in a supply constrained environment.”

Understand current market conditions

It’s important to know the current market conditions and how quickly the value of the investment may change, especially when interest rates are rising. While the seller might have an idea of value based on what it was yesterday, buyers’ expectations are based upon where they think the interest rates are going to be when it closes in 60-90 days and what it will cost to carry and own a building when they are financing a large portion of the cost. This can create a gap between the buyer and seller. It’s important to know how to negotiate in a cap gap market and navigate through the process, and often the answer is to look at a lot more deals and then be picky about which to pursue.

Don’t underestimate operating expenses

The top five operating expenses associated with multifamily are utilities, taxes, insurance, repair and maintenance, and management. Multifamily homes are not publicly traded buildings and people have different levels of skills and methodology when they do the accounting on their buildings. Investors need to be able to spot opportunities to gain some income or reduce expenses to stay competitive in the market.

Know your target tenant

You need to understand what is important to your target tenant and does the immediate neighborhood have that. Is there access to good quality schools, grocery stores, and public transportation? What type of employment opportunities are nearby and are they limited to one major employer which could cause issues if they close or relocate? Think about how you can create community when you have people from diverse backgrounds where they can feel safe and thrive.

Use Management Alpha

Management Alpha is the ability to achieve above market returns via day-to-day execution of a clearly defined strategy for a property and it is critical to success in long-term real estate investing. In order to achieve consistent above market returns, management must maximize value and cash flow by reducing expenditures and increasing revenue sources, being aware of what will work with your residents. Some examples of this are being aware of market rents at each lease renewal, testing the effects of light renovations on rent growth, and transferring utility billing to tenants.

Once you have done all of this, then reducing turnover is essential. “If you can buy a building turning 60% of the tenants in a year, which is market average, and tap that down to even just 50-55%, there’s just a lot of lift and a lot of cost savings in not having to go through the cleaning and painting and the re-leasing and the marketing costs and the staff demand on time and all that goes into losing a customer,” advises Hoban.

“We are chronically undersupplied with apartment housing in the United States just about everywhere,” said Hoban. While some areas may have had an oversupply due to an exodus of residents because of employment, many areas are seeing an influx of new residents for other reasons, such as social or political. Hoban recommends being cautious about where you gather your information and carefully evaluate it because prevailing thinking may not be what it seems. He also recommends looking for business friendly places with lots of job creation. “Look for where the jobs are going and where the people want to be because you can’t win this game unless there is net positive migration in that market tied to people who have a good job.”

Multifamily and Your Self-Directed IRA

A self-directed IRA gives you the ability to invest in alternative assets like real estate, promissory notes, and syndications, and the flexibility to invest as an active or passive investor. If you would like to learn more about self-directed IRAs and how to use them to invest in multifamily housing, schedule a 1 on 1 with one of Quest’s IRA Specialists.

This article is information excerpted from Tom Hoban’s webinar “Investing in Multifamily Real Estate for the Long Term.” Tom Hoban is Chairman and Co-founder of Hoban Family Office and the Coast Group of Companies, a diversified group of property management, facility services, specialized construction, brokerage, and investment companies serving private and institutional owners and investors throughout the Pacific Northwest. His real estate investment firm, CEP Multifamily, owns and operates over $400 million in institutional quality multifamily assets.

Common Questions IRA Holders Have About Property Taxes

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

As the year comes to an end, Self-Directed IRA holders using their IRA to invest in assets like real estate or commercial properties have to keep up with expenses. One of those being property taxes. Below are a few of the top questions received towards as the year comes to a close. 

Who can pay my IRAs property taxes?

Investors need to bear in mind is that all expenses related to property owned by your Self-Directed IRA (maintenance, utility bills, upgrades, property taxes, etc.) must be paid from your IRA. These payments cannot come from a personal account and must be submitted on time. 

When are my property taxes due?

The due dates will be different depending on where you live, but most Texas counties will start mailing out tax bills for the property taxes. Come January 1st, property values are determined for the year. At this time, exemption qualifications are set. When this happens, a tax lien is placed on properties to ensure each tax bill is paid. Then on January 31st, you Texas property taxes are due. The delinquency date (if you didn’t pay, you now owe delinquent property taxes) is on February 1st.

If you’re unsure of the due date and don’t have an automatic payment set up, you can find all helpful dates here on the TaxEase website.

What should IRA holders do to make sure that the property taxes get paid? 

Before anything else, you should determine where the bill is mailed. This is really important for clients with new investments, as counties typically do not update the mailing address for property taxes until the next year. Clients should also check their email folders to ensure that any correspondence or needed approval from Quest is addressed. The beginning of December is a perfect time to check this and confirm the correct information we have on file for you. 

Another thing clients can do to make sure property taxes get paid is monitoring the funds in your Quest account. Some situations have occurred where a request was made, but there were no funds in the account to make the payment. In the event a payment request is submitted and there are insufficient funds, a Quest representative will reach out. To ensure you there is no delay, it’s best to check back often to monitor your account balance.

At Quest, we can set up reoccurring payments for property taxes. We would require supporting documentation of the bill. Bills should be forwarded to our office if received at your residence. If you do not have automatic payments set up through your account, you can submit the payment request in your Client Portal or submit a Payment Authorization Letter along with the supporting tax bill to our team. 

What can IRA holders do to make property tax payments an automatic process?

Self-directed IRA holders should understand that many counties will only send property tax bills one time per year. In the past, some clients that have not set up their automatic property tax payment, and when they pay the first half of their taxes at the end of the year, they are penalized for the second half due within the next half year. 

There is an option to select “recurring” when you submit a request in your Client Portal. Here you can choose the frequency, like annual, monthly, etc. As long as the supporting document showing the amount of the bill arrives at our office, Quest will process the payment within 24-48 hours, given there are enough funds in the account to cover the cost.

For more information about managing real estate in a Self-Directed IRA and how they work, please visit our website or talk with a certified Quest representative. To get more education about getting started, sign up for a free consultation with an IRA Specialist HERE.

Growing Your Retirement by Investing in What You Know Best: Getting Back to the Basics

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

Building wealth and saving enough for retirement can get overwhelming, but it doesn’t have to be. Most people think that they can only invest in publicly traded investments like stock, bonds, mutual funds, and CDs… but that isn’t true at all. With self-directed IRAs, you can diversify your investment portfolio into private assets like real estate, notes, land, oil and gas, and other private entities. The best part? It’s all on your terms. Self-directed IRAs truly allow people to take back control of their retirement savings and invest in assets that make sense to them. 

What is a Self-Directed IRA?

Self-directed IRA custodians make investing fun while putting the control back in your hands. A self-directed IRA is like any other IRA account; the term “self-directed” is just used to describe the type of account it is. The difference between a regular traditional IRA and a truly “self-directed” IRA is the types of assets they hold. With a self-directed IRA, you have the ability to choose from the broadest possible spectrum of investments, including those not traded on a stock exchange. You get to make all the decisions about your financial future. Most people find that they make more money and feel more confident when they are able to invest into things they know and understand. 

What Can an IRA Invest Into?

A self-directed IRA can be used to purchase almost any private asset. Common investments include single family real estate, rehab properties, commercial and multifamily real estate, private loans, performing and non-performing notes, oil and gas, land, startup companies, LLCs, and other private businesses. The list goes on! The rules say that as long as you do not invest into collectibles, like art or cars, and life insurance you are safe. 

What types of accounts can be self-directed?

Every custodian will offer different accounts. At Quest, we offer seven different types of retirement accounts that can be self-directed:

  • Traditional IRA – With the Traditional IRA, your earnings grow tax-deferred. Only pay taxes on your gains when you make withdrawals in retirement.
  • Roth IRA – The Roth IRA is a special retirement account where you have the ability to grow your profits completely tax-free.
  • SEP IRA – This self-directed tax-deferred account can be great for self-employed individuals, allowing a tax deduction for contributions made to a SEP IRA.
  • Simple IRA – A SIMPLE IRA is an employer-sponsored retirement plan designed specifically for small businesses, giving employees and employers a simple way to contribute and grow this account.
  • HSA – Get the best of both worlds with an HSA, with the ability to get tax-deductions on contributions and tax-free distributions for qualified medical expenses.
  • ESA – Education isn’t cheap, but with a Coverdell ESA you can earn tax-free distributions on countless qualified educational expenses as you self-directed this account.
  • Solo 401k – With the extra benefits that come with this account, like checkbook control and more freedoms, many people are eager to learn how to get started – just make sure you qualify.

Self-direction can be a great option for those looking to take more control of their financial future. If you are interested in learning more about self-directed IRAs or would like to get started, schedule a free consultation with an IRA specialist today by clicking here!

How to Invest in Real Estate with Non-Recourse Loans

Posted on by Quest Trust Company
Estimated reading time: 6 minutes

When using your Self-Directed IRA, there might come a time when you need to get additional funds for a deal.  Sometimes, other strategies like partnering, may not work for your situation. So, what happens if your Self-Directed IRA needs to get financing?

In this guest interview article, I’ve interviewed one of Quest’s Real Estate Specialists, and we will discuss the certain types of loans for Self-Directed IRAs, along with additional information and rules that come with them. 

Sarah:

Hi, thanks for joining me. Today, I have Courtney with me; she’s one of our transaction specialists who has been with us for quite a while. Now, how long have you been with the company?

Courtney:

Almost two years! I’ve been in the real estate industry for about six years now. I got licensed in 2015, and from there I’ve been in any type of real estate transaction you can think of from apartment locating, wholesaling, fix and flips, residential sales, new construction home sales, leases, and I’ve been in commercial real estate, too. That’s one of the things I really like about it, because there’s so many different avenues and ways to make money. I enjoy real estate! 

Sarah:

That’s awesome! I can see that passion!

Courtney:

And now, with Quest, you can buy real estate with your IRA! It’s just another thing under my belt. I’m always looking to learn and to grow and to expand. I looked at this as a stepping stone. Instead of just buying it out right personally or through an LLC, you can actually use an IRA – any type of IRAs. It’s just different rules and regulations when the IRS is involved, and it’s about being able to help investors know this knowledge and navigate the SDIRA when doing these real estate investments. It’s been a journey, but it’s been an uphill journey and I’ve learned so much.

Sarah:

I loved one thing you just said there. You said “navigating” and operating real estate investments when it works with an IRA. I love that you mentioned that, because it really is different when you’re doing things with your personal money and when you’re doing things with self-directed IRA funds. It leads me right into what I want to talk about in this article. What I wanted to talk about today is non-recourse loans. We’re going to cover a bit about what they are, when they come into play, and how they’re different from regular types of loans, etc. So, let’s jump right in. For those that might be wondering what a non-recourse loan is, can you explain non-recourse loans?

Courtney:

A non-recourse loan is actually the only type of loan that an IRA can get for financing. And with that, it pretty much takes the liability off of the IRA account or the client personally, and any other assets or money in their IRA. With the non-recourse language, it’s detailing just that in so many words. Of course, we can’t tell people how to structure that language, nor can we give tax or investment advice; but as long as it mentions that the loan is without recourse, we can move forward with the investment. Essentially, in the event of default, all the lender would be able to do is take the asset that the loan is tied to.


Sarah:

Now, with a loan like that, I would imagine you’re probably not going to see normal interest rates, right? What do those look like?

Courtney:

Those are going to be extremely higher than what a normal loan would be, because there’s no extra security involved. You can see interest rates starting anywhere from 30% to 60% (not always the case). It all just depends, and there are different lenders out there that offer different things. You have to do your own due diligence, shop around, and figure out what works best for you in that aspect.

Sarah:

I’m sure that if it’s the difference between getting to do a deal and not getting to do a deal, I bet people will go ahead and do it. You also mentioned due diligence. When getting a non-recourse loan, you want to make sure you’re doing due diligence. What type of due diligence should a client do? 


Courtney:

You really want to shop around. When clients call in asking about non-recourse loans, we share an email that first details what a non-recourse loan is. Then, we may share some lenders that we see a lot of our clients work with, just meaning that they have worked with IRAs before. But, from here, the client really needs to do their own research for what is best for them. There are always more companies out there that are willing to work with you. We cannot recommend specific non-recourse lenders, so put in that research if that property is really something that you want.

Sarah:

When clients are shopping around, do they just ask if they will offer non-recourse loans? It sounds like not everyone can do these types of loans. Do all companies do these?

Courtney:

No. So, it really just depends. It’s all about whether they’re willing to work with the IRA holder.

Sarah:

That’s important to know, thank you. What does the lifespan of a non-recourse loan look like?

Courtney:

The terms of those loans can be as long as the client works them out to be. We’ve processed some that are 20 years up to 75 years or something. It’s all about what the client can do. As long as the IRA is good and paperwork on our end looks good, they can pretty much come up with any type of terms they want.

Sarah:

And for paying back the loan. How does that work? Are there ways that they can pay that loan back during the deal? If I have a self-directed IRA and I get a non-recourse loan, can I just pay that back with my outside money – my own money? Can you maybe touch on that a little bit?

Courtney: 

Good one, yes. So, the funds have to come from the IRA, because the IRA has title to the asset and it’s tied to the loan. Let’s just say there’s an event where you don’t have enough funds in the IRA to pay the loan back. Unfortunately, the client cannot personally pay that loan back. They cannot get someone else to pay the loan back for them. What we see at that point is that it would just have to be distributed out. They would lose that asset, unfortunately, but since its non-recourse, the lender can’t go after them personally to get the funds.

Sarah:

Thanks for answering that. Well, I think you’ve done a great job of helping explain what non-recourse loans are and when you might need them. What’s one final piece of advice that you’d give someone who is considering getting a non-recourse loan?

Courtney:

I would say, just take a step back and do your due diligence. Make sure you’re really seeing what works for you, and what you’re trying to do with the IRA and also the property. It’s not as hard as a lot of people think it is, especially since we know what needs to be processed these types of deals. It’s also important that they know we’re dealing with certain compliance rules within the IRS, and that there specific documents and language that’s needed. We’re always here to help and they’re really not as hard as you think. There are a lot of resources out there; you’re not alone through this!

That’s right! If you’re ever looking for more educational material, Quest is always putting out new content via blogs and videos to help give you the tools for success. Check out our Education Center for more resources! If you have questions about starting your Self-Directed IRA to invest in real estate or just want more information about non-recourse loans, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Short-Term Rentals, Airbnb and Your Self-Directed IRA

Posted on by Quest Trust Company
Estimated reading time: 6 minutes

Have you ever imagined sleeping in a railroad container or a renovated school bus? These are just some of the quirky, unique stays that you can find on Airbnb! Offering more than 5 million listings, each with their own flair, Airbnb and other short-term rentals are growing into one of the most well-known (and well-producing) investments on the market. It’s no shock that self-directed IRA holders have taken notice.

With these short-term rentals, hosts can rent out their properties, whether it be an apartment, house or even a yurt, all while adding their own personal touches and structures. With all of the freedom to make it your own, non-traditional investors are flocking to these assets. And, since the Internal Revenue Service (IRS) does allow investors to hold real estate in their IRAs, Airbnbs continue to grow as the next great alternative investment for self-directed IRA holders, too.

Airbnb Investment: Is It Right for You?

Airbnb has become a permanent fixture in the travel industry, giving guests more affordable, personalized options for their road trips and vacations. While it has benefited travelers, it has also given entrepreneurs a new way to make passive income from rentals. Investing in Airbnb can be an attractive option if you are looking to create a steady stream of income and diversify your portfolio. In addition to this income stream, you can also benefit from capital appreciation if you plan to sell the property at some point down the line. With careful management and market research, investors can maximize their returns in the long run for their rental property.

When investing in a short-term rental or vacation rental property, it’s important to keep in mind that there are certain risks involved such as a decrease in demand due to external factors like economic recessions which could significantly reduce rental income numbers and lower prices. Occupancy rates can fluctuate seasonally as well. Airbnb investment can also require additional maintenance and upkeep due to the multitude of guests coming through every or week instead of just one tenant throughout a full year. All of these should be taken into consideration prior to investing into Airbnb homes or any other kind of real estate investments.

Holding Real Estate and Airbnb in SDIRAs

When it comes to investing in Airbnb, self-directed IRA holders have a unique opportunity to capitalize on this trend. While traditional investments may be limited and predictable, your self-directed IRA gives you access to a wide range of alternative assets like real estate with the potential for greater returns. It’s important to note that all IRS rules still apply, so you should familiarize yourself with them before getting started.

One of the most important rules with holding any alternative investments in your IRA has to do with who is receiving the benefit. Specifically, since your IRA holds the asset, it is the one who will need to receive the benefit – all of the benefits. So, what does that mean for you? Rules are put in place that say you, a disqualified person, cannot benefit from the investment. These rules also apply to any disqualified person to your IRA, including your spouse, your lineal ascendants and descendants, their spouses, and any companies these people own, control, manage or are highly compensated by.

What this means is that you could not go live in the property personally, nor would you be allowed to go and vacation at the property your IRA owned. On top of this, you would not be allowed to rent it out to any disqualified person or hire those persons to work on or manage the property, either. The IRS has made it very clear that if you plan to hold an Airbnb or short-term rental in your self-directed IRA, it needs to strictly be for investment purposes only.

Let’s Talk About UBIT

Now that you’re fully aware what you can and cannot do with this investment property, you may think you’re absolutely ready! But let’s make sure you understand one other important factor that surround Airbnbs. Sometimes it can incur a tax – Unrelated Business Income Tax, or UBIT. As the IRS works to catch up with the increasing popularity of Airbnb investments, thankfully the rules surrounding them become more apparent and clearer to understand, which can be found at Treasury Reg. § 1,469-1T(e)(3)(ii).

For short-term rentals, UBIT could apply in some situations. Typically, a UBIT tax will come into play for short-term rentals when the average rental period is 1) seven days or less, or 2) thirty days or less and significant personal services are provided with the rental. Long-term rentals are specifically excluded from this type of tax, in most cases, but in some cases short-term rentals can avoid tax trigger, too. By extending stays for over the 7-day limit and not offering “personal services,” like maid or breakfast services during someone’s stay, UBIT can sometimes be avoided.

“Personal Services” and Running a Trade or Business

Understanding what a “personal service” is can better help you prepare for potential UBIT taxes. It was mentioned that maid services during someone’s stay would be considered a personal service, but more general needs like cleaning in between residences between guests would not be. The same goes for other basic necessities. Providing the basics such as heat, water, and electricity would not be deemed a personal service. Personal services typically come into play when more convenience items and services are provided. When a service could be looked at as more than just a short-term rental (and more like a hotel or motel, for example), UBIT could be triggered.

In some cases, if income generated by a property held by a self-directed IRA is deemed trade or business income, it will be subject to UBIT. What does this mean? IRAs do not have to file a return if the gross income received from the property is less than $1,000, but if it is more than that, the IRA will file a tax return (IRA Form 990-T) and pay tax on the income generated. That is why it’s important to consult with a tax attorney about the potential for UBIT. With most short-term rentals offering more and more personal touches and experiences, like food and laundry services, UBIT could be something you’ll need to factor into your investment plans.

So, Does it Make Sense to Invest in Airbnbs?

Deciding whether or not purchasing an Airbnb or short-term rental in your self-directed IRA is a good idea will ultimately come down to each individual and their understanding of this type of investment. Being able to hold an income-producing asset that is easy to market could be a great opportunity for SDIRA investors – but it’s imperative that you’re familiar with all the rules and potential taxes that come along before making an investment decision.

There’s no doubt that gains received from the income your short-term rental have the potential to grow in your SDIRA to create tax-free distributions, but always make sure you’re investing the right way so that you remain safe and compliant. For more information about how to invest into Airbnbs with a self-directed IRA, schedule a 1-on-1 consultation with a Quest Trust Company IRA Specialist by clicking HERE.

 

 

How to Submit a Real Estate Investment with the QTC Investment Hub

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

Change the way you submit an investment with the new, online QTC Investment Hub in the Client Portal! You now have the ability to submit new real estate investments and much more in the portal – and you can talk to a live representative at the same time. This means your investments are taken care of faster than ever before, because in just a few easy steps, you can have your new investments uploaded in a matter of minutes. 

How to Submit a New Investment 

The days of emailing back and forth or picking up the phone are over! When you’re ready to submit a new real estate, simply log in to your Client Portal.  With the QTC Investment Hub, all you need to do is fill in the step-by-step investment information and funding details, then your investment is ready to be reviewed for funding. 

5 simple steps! 

  1. Log in to your client portal and under the “Investment” tab, click the green button that says “Submit New Investment” 
  2. Select the type of asset you want to purchase and what account you’d like to use 
  3. Share the investment details with us and how you’d like us to send the funds 
  4. Confirm the information and special instructions, then upload your supporting documents 
  5. Final review and last confirmation section, and hit submit! 

* Real estate investments will come with a series of specific questions and requests for supporting documentation.*

Once your document has been reviewed, you will receive an email confirmation notification letting you know your documents are ready for your “read and approved” signature. This status will also update under the pending investment client portal submission section. The last thing you will need to do is confirm the information and pay any associated fees, and you’re finished! Understand that at this point, your investment is placed in a queue for final review with our Quality Control team, but once everything has been cleared, the funds are released. 

If you have a more complicated investment, like a split asset or an additional funding, no need to worry. You can still take care of this in the QTC Investment Hub. Split investments will require information for all involved parties, which will add an additional field during the first part of the submission process. Additional investments will work the same way as regular new investments, but will allow you the option to select if the request is tied to a current investment. 

Checking the Status of an Investment 

If you want to stay up-to-date with your new investment, you can! To check the status of your investment, we’ve given you online access to your very own investment tracker in your Client Portal. Once your new investment is submitted in the portal, you can track the funding status by click on the pending investment in the “Investments” tab. 

If you haven’t logged in to your Client Portal, now is the perfect time. With all the new features, investing into real estate with your SDIRA at Quest will never be the same. If you have more questions about how to submit a real estate investment through the QTC Investment Hub, reach out to a representative today at 281.492.3434 and let us help you get started!

Analyzing Different Real Estate Strategies for Self-Directed IRAs with Guest Speaker: Shenoah Grove

Posted on by Quest Trust Company
Estimated reading time: 12 minutes

Self-Directed IRAs are perfect vehicles for creating tax-advantaged buckets of wealth for the future, and they also let investors save for their retirement by investing into assets that they are familiar with and enjoy. Today, Shenoah Grove of the Texas Real Estate Investor Association joins me to share some strategies that have worked for her and her team as she has grown up in the investing world. 

Sarah: Thank you for joining me today. We’re going to talk a little bit about Self-Directed IRA real estate strategies. We’ll also discuss some of the strategies that you are personally using and teaching in your practices. Before we jump in, can you tell me a little bit about yourself?

Shenoah: Yeah, so Shenoah Grove here, founder, owner and operator of Texas REIAs, Texas’ largest association of real estate investor groups with over 87,000 members. I’ve been investing since 2003, but I’m a fourth generation Texas real estate investor. My great-grandparents owned a rental property. They owned about 18. And my grandparents own rental property. My parents still own about 12 doors to this day. So, it’s a little bit in my blood. I love what I get to do every day, both as an investor, as well as the owner and founder of Texas REIAs. I also coach many clients who are looking to either get started in real estate and/or tweak what they’ve already been doing in order to scale their business. So, that’s a little bit about me.

Sarah: It’s really neat that real estate investing has been in your blood for so long. It sounds like it’s something you’ve been passionate about for quite a while. What really got you started? What kick-started your time investing?

Shenoah: Well, I think we have all been socialized, probably over the last 50 years, just to go to college and we’re told that will be how we excel. That’s how we succeed. And even with real estate investing and with generations of real estate investors in my blood, I was also socialized that way. So, I got my undergraduate degree at University of Texas. Then, I got my MBA at Rice and I thought, “This is how I’m going to make it in the world, and how I’m going to make it in corporate America”. As I was doing that, I was working my butt off and I was watching my income grow, but I was also watching my parent’s income. It was double. Their wealth would double just from real estate investing. It became obvious at some point that I needed to reevaluate what I was doing and look at real estate investing in more detail.

Sarah: I love that background. Any specifics that stick out to you?

Shenoah: The first investment deal that I did was actually when I was in college. Now, don’t think that I’m bragging here, but at the time I was making $4.75 an hour. Okay, yeah. How does a college kid with hardly any income buy a house, right? So, the way that we did it at the time – this loan product is not available anymore – but at the time we used something called a “non-qualifying assumable loan”, which is essentially like buying subject-to today. Although they don’t make non-qualifying assumable loans anymore, you can still purchase the property subject-to the existing mortgage today, which is how I got my first house when I was in college. Actually, one of the members of our real estate investors association built a house right next door to this property and sold it for over $2 million. So, that’s how you build wealth as a real estate investor. You buy in the right places and you hold in the right places. And I love what I do now as an investor.

Sarah: Oh yes, I can always see how passionate you are about it every time I’m at one of the Texas REIA events. I always see a smile on your face and it always seems like people really love being a part of the program. Now, there were a couple of terms that you threw out when you were talking. You mentioned subject-to and buy and hold. Those are obviously a couple of real estate strategies that people can utilize whenever they want to invest in real estate. What are some real estate strategies that you’re using right now as you invest?

Shenoah: For me, I want to make money every time the phone rings and we are what we call ourselves, “strategy agnostic”. I don’t care what strategy it is. If there’s an opportunity to make money, then I’m going to employ that strategy. I want to make money whenever the phone rings. I see a lot of investors get caught in the trap of, “I want to do fix and flips”, or “I want to do buy and holds”, or “I want to do wholesaling.” Well, that may work, but it may not work on the next call you’re about to get. So, I don’t care if it’s commercial, single family, a duplex, three-plex, four-plex, or raw land. If there’s an opportunity, I’m going to do my due diligence and try and figure it out.

Sarah: That’s such an important point. There are so many opportunities. 

Shenoah: Right. And you spend a lot of money as a real estate investor on marketing, right? So, if you’re trying to fit every single lead that you get into one specific square, if you will, that’s not going to always work. You’re not going to be able to scale your business and/or reach the amount of income and wealth knowledge that you want as a real estate investor. For me, I love all the strategies. We love to buy, fix and flip. We love to build new. We love to buy and hold. We joke that we have the Blue Bell Ice Cream investing philosophy, being from Texas. Most people know Blue Bell slogans, which is “We eat all we can and we sell the rest.” So, for me, I want to keep all that I can, and I want to sell the rest, meaning sell enough just to fund my lifestyle.

Sarah: And one strategy I know you utilize is the power of the Self-Directed IRA.

Shenoah: Of course, you know, being able to do that in a self-directed IRA, being able to do that in our Roth IRA really increases and even doubles the power of your investing. So, and there’s so many different strategies you can use. In our self-directed IRAs, we loan money to other investors. We also buy properties that we keep as rental properties. We have shares in apartment complexes, multifamily, and other commercial investments. We even buy subject-to the existing loans in our self-directed IRA. And when you think about buying subject-to in your self-directed IRA, for example, that really compounds it. Einstein says the most powerful force in the universe is compound interest or appreciation, right? Combine that with some of the tax-free savings that you can get using a self-directed IRA, specifically a Roth IRA, and there you go.  The self-directed IRA knowledge [is] critical in order to build that tax-free wealth.

Sarah: That’s great. Everyone is a little different. I like to use my Roth to be passive and do private lending, and I always love hearing about the creative ways other’s use their IRAs. 

Shenoah: We also partner with homeowners to do equity partnering. We like auctions and options, wraps, and all sorts of different things. And again, when I see a deal, I don’t look at the deal and say, “I want to fit in my strategy on that deal,” But instead I say, “What does this deal tell me?” It will tell me the strategy that I need to use. That’s a little bit about some of the different strategies that we use, at least in our self-directed IRA. 


Sarah: Absolutely. You talked about a lot of great strategies there and using a self-directed IRA to do so. Before we move on, for those that may not know, can you briefly define what a sub-to is/what a wrap is?

Shenoah: Yes, this is the strategy that will allow your “dollar to holler”, as I like to say. The average price in Texas right now is around $350,000. Not everybody has that money just laying around to be able to do investments with, but they might have $50,000 or $100,000. Well, with $50k or $100k, you could easily reinstate a property and/or do repairs. Even though you couldn’t acquire that property on your own with your own cash or with your own credit, or even on time for example, buying subject-to allows you to cut that timeframe down to nothing versus waiting on a traditional lender that might take 30 to 45 days to give a loan. Sometimes the properties we’re investing in, you don’t have 30 t0 45 days to close it. You might have two or three, and that’s where the excitement and the opportunity comes in. So, you could easily just reinstate a homeowner’s or seller’s loan and take over their payments, right? There’s three instruments that are typically filed on a sale. There’s the general warranty deed (who owns the property), there’s the promissory note (what’s owed on the property), and then there’s the deed of trust, which helps enforce that promissory note and allows for nonjudicial foreclosure, for example, here in the state of Texas. When you’re buying a property subject-to, that original promissory note and that original deed of trust that’s held by the lender stay in place. The general warranty deed transfers to you, the investor. You are the new owner. That’s buying straight subject-to. Now, the best way to do it to make sure you not only protect yourself as an investor, but also the underlying seller, is to create a new promissory note and a new deed of trust. It kind of sits on top of, or “wraps” around, the original note and deed of trust. Then, the original note and deed of trust, (the person you’re making payments to – the person who can foreclose) is the Wells Fargo chase bank of America, et cetera. And the new note is going to be the original seller. So, if you default as an investor on that loan, then the seller can go back and foreclose on you. It gives the seller additional protections that gives the seller a sigh of relief.

Sarah: That was a great explanation. Thank you!

Shenoah: Yeah, so, buying subject-to is really just taking over payments. Creating that wrap around mortgage is where you give that seller those extra protections by creating that additional note and deed of trust. Very powerful strategy again. Then add a self-directed IRA in the mix, and the possibilities of what you can do are endless when you are strategy stacking. It just feels like you’re a Jedi!

Sarah: Oh, I love what you just said there: strategy stacking. That’s a cool term, and self-directed IRAs are obviously just one more layer that you can have as a partner or, you know, a tool in your tool belt. Let’s talk a little bit more about self-directed IRAs specifically. When did you start using self-directed IRAs as a part of your strategies?

Shenoah: When we started investing in 2003, we were in corporate America. We had a 401k and it’s like you had four options: low risk, medium risk, high risk, and international, which means we don’t even know what’s going to happen here. That was about it. So, we started investing, but we kept thinking how we wanted to be diversified. We were going to keep our 401k money in the stock market, and then we we’re going to keep our real estate money over separate. That worked for a while, but at one point we realized we weren’t watching the stock market. We weren’t being good caretakers of that. We also realized that we were probably not going to outsmart the average person who is on Wall Street. But as we started investing for a while, I started to think, “Okay, well, I can outsmart the average real estate investor. So, when we realized that we live, breathe, eat… and sleep real estate, we moved our money over into a self-directed IRA. It’s nice to be able to touch, look, see, and evaluate the investment. You don’t have to worry about some crazy worldwide disruption changing the whole value of the portfolio. 

Sarah: That is so true. 

Shenoah: The only hockey quote that I know is by Wayne Gretzky. And he says, “I don’t skate to where the puck is. I skate to where the puck is going to be.” You need to know where the values are growing and you need to invest in those locations, especially for the buy-and-hold strategy. The fix-and-flips are not going to change value in the short amount of time that you have to raise the value of that property. If you know where the value is going and growing over the course of the next several years and you’re investing there, then you’re going to win. Never is that hockey statement so true then about real estate and real estate investing, specifically when it comes to buying and holding. So, yes, this is something that we’ve loved to do and something that has benefited us, and it has really been the basis for our wealth as investors. And then double that with some of the tax-free benefits that you get, and yeah, it’s called winning!

Sarah: That’s actually exactly what I was going to say, too. Tax fee, and then also being able to invest in what you know. If you’re investing in what love, you’re probably going to get higher returns. Now, on the flip side, are there any strategies that you all try to avoid? Strategies that make you think, “We are going to avoid these at all costs. They don’t work for us.”?


Shenoah: Yeah, every area is different. So, Texas has different laws than California, than Florida, then other places. We factor that into our strategy. And also, as an entrepreneur, you always have to remember that it’s your job to be looking for disruptions, right. What’s the disruption, what is the solution, what is the workaround, and do we need to change our business and look for different strategies. 

Sarah: I love that you mentioned workarounds. I mean, one of the biggest workarounds we have is obviously the backdoor Roth IRA which we talk about in other articles, but some of those work arounds can sometimes even make a strategy you didn’t think you had possible. Those work arounds – when you understand them and do them correctly – they’re so important.

Shenoah: Yes, you have to be careful. I don’t like pushing the envelope when it comes to self-directed IRA specifically from the standpoint of when what I’m doing might create a taxable event for me. I see a lot of people out there who are possibly creating taxable events, just because they don’t know or just because they got educated on what I call “YouTube University”. They’re listening to the wrong people. That’s why I love you guys.

Sarah: Thank you, and you are so right. It really is important to surround yourself with the right people when it comes to proper education, whether it’s Self-Directed IRAs or real estate investing or anything really! Well, Shenoah, I really appreciate you being here with me today and sharing some of your strategies and insights with me today. If people want to get in contact with you where can they go?

Shenoah: Our website for the TEXAS Real Estate Investor Association is https://texasreias.com/ . Thank you!

As you can see, not one strategy is better than the other, but they can all benefit you in some way. Being able to understand and utilize all sorts of different strategies will expand your investing knowledge and could be what takes your Self-Directed IRA to the next level. If you ever have questions about how to utilize certain real estate strategies in your IRA or want more information about how to get started, we encourage you to talk to an IRA Specialist! To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

How to Streamline Private Loans in your SDIRA with Quest Supervisor Robyn Ruston

Posted on by Quest Trust Company
Estimated reading time: 8 minutes

Thank you for joining me today. I have Quest’s Dallas Office Supervisor and transaction specialist Robyn Ruston here with me today. She’s an expert when it comes to almost anything involving real estate, notes, or private entity purchases. Today, we are going to be talking about how to streamline the process for lending and borrowing when a Self-Directed IRA is involved. 

Sarah: If someone is interested in doing a private loan with their Self-Directed IRA, what does one even need? Whether that be making sure preliminary boxes are checked or providing forms, what is needed to make sure that funding gets taken care of? 

Robyn: Well, first and foremost, the IRA accounts have to have funds. Then, it depends on what type of note they want to do. So, they decide that with the borrower, what kind of note they want to do, (secured or unsecured). For instance, we’re always going to have to have a Direction of Investment Form. It doesn’t matter what kind of loan they’re going to do, they will always need the Direction of Investment. It’s our internal form that tells us, you know, where to send the money, their interest rate, maturity date. It just gives us the general information of what the investment is. It tells us the pertinent information on how to process the funds. 

Sarah: And that information is very important. We can’t fund without it.  

Robyn: Right. So, if they want to do one that is secured with a note, then we would need a promissory note and we need the deed of trust and/or mortgage showing that the IRA is the lender. Once the note is completely paid off, the borrower will submit a release of lien and Quest will sign it releasing the IRA from that asset.  The supporting documents specify the terms between the borrower and the lender. The biggest thing to remember is that, in order for them to do any type of investment, we always need supporting documents determining whatever they’re going to do. 

Sarah: Got it. I also heard you mention… you touched on the fact that they have to decide all those terms. That’s an important part there.  

Robyn: Yes, that’s decided between the borrower and the lender. They decide all the terms, and how it’s going to be written. They find somebody who drafts all the documents surrounding the investment. That’s what makes it self-directed. As the custodian, we review all documents and we make sure that it’s in compliance with IRA terms. We make sure that we have the right vesting on there, and that we have the information that’s needed in order for us to be able to hold that investment. 

Sarah: Perfect. So, I’m sure that you probably have lenders calling in all the time asking “how do I fill out these forms?”, and “What do I do?”. How often do you get lenders and borrowers calling in for questions and how do you address those?

Robyn:  When it comes to answering questions, we can answer questions for the borrower and to the lenders. But we can only answer questions for the borrower to an extent, as long as they don’t pertain to the lenders account. We don’t mind like talking to the borrower to let them know what’s needed or the steps for the investment process, just so both sides of the party are fully aware of the steps that are required to make an investment happen. So, we do also talk to the borrowers often. 

Sarah: I’m sure one of the biggest questions that a lot of the borrowers have when they call in is “I have to pay back my lender! How do I do that?”. How does the lender get paid back? Can you talk a little bit about that and where those funds have to go? 

Robyn: There are a couple of different ways. We can always provide Delivery Instructions to our lenders, so that the borrowers can make payments a couple different ways. They can wire over the funds to an IRA account. They can send them via ACH or through check, and they can even use our online payment methods. You know, we make it pretty simple and easy. They will send the funds directly to Quest and then we will allocate those properly to the clients’ IRA accounts. 

Sarah: Now, one thing that you touched on there that’s really important – something that I think all of our readers should know – is those funds have to go back to the IRA accounts. I’m sure that’s a big mistake many people make. Interest payments must be made to the IRA. 

Robyn: Exactly

Sarah: So, while they’re going through that funding process, what’s one of the biggest things that you see holds people up getting that investment funded on time?

Robyn: Most of the time, you know, what I see is that the documents aren’t worded right; we don’t have the correct language, meaning the vesting is incorrect. Another is that we don’t have any wiring instructions. So, the best way to just kind of make that go quicker is to make sure the client understands a few things. We always let the client know, “why don’t you go ahead and get the terms drafted and then submit those over to us.” Let us look at them. We’ll tell them, “this needs to be corrected. That needs to be corrected.” Once you get the final draft, that’s when I would get people’s signatures and stuff like that, because every time you make a mistake or every time you have to correct the document, you have to go back and get a signature again. 

Sarah: I can see how that could be a holdup.

Robyn: The best way to streamline the process is to go ahead and just submit all documents over for a preliminary reviewWe can’t draft it, but we can review it and let you know if it meets all of our requirements. We can say, “go ahead and get the borrower to execute” or we can let them know, “hey, your vesting is incorrect or you’re missing the maturity date, basic information”. That way they can correct it.

Sarah: And even if one thing is missing, that’ll hold something up. We have got to have it all. 

Robyn: We’ve got to have it all. 

Sarah: One thing that you mentioned at the very beginning when we were talking about what’s needed, you said that it depends on what type of note and I want to go back to that, because that was really important. There are unsecured versus secured. Now, if somebody wants to do an unsecured note, what type of due diligence should be done before entering in to a Self-Directed IRA investment like that. 

Robyn: Yes, we recommend that the client does a bit of research and that they know what they are investing in, especially with an unsecured note. The great thing about our IRAs is that they are self-directed, but it can also put more responsibility on the account holder since all of the investment details are curated between the lender and the borrower. It’s best definitely to do some due diligence and just make sure that they are aware of what they’re investing in, making sure that they are agreeing to these terms in this loan, right? And then to just making sure that everyone’s goals is met at the end of their investment, their promissory note. 

Sarah: Mhm. Perfect. Moving right along… What are some common questions that you get? What do people call in and have the most questions about? Let’s address some of those. 

Robyn: [chuckles] Mostly, “where’s my funding?” Oftentimes, we get asked, “can we go ahead and fund without a signature from the borrower” or “how is the investment status, what is the status of the investment?” 

Sarah: And if they wanted to check on the status of an investment, do they have somewhere where they can do that? 

Robyn: Yes. The QTC Investment Hub has an investment tracker. It’s located in their Client Portal. 

Sarah: Awesome, well do you have any other words of advice that you would give to either lenders or borrowers to help them streamline the process?

Robyn: Yes. To just make sure that, as the client, they are responsible for knowing what is exactly needed for their note and what we look for. That way they know for when they’re getting their note drafted. We can always send it over to them through email. So, when they’re getting it drafted they can make sure that everything is included. I also recommend that, before they even start to process, do their digital research. Really look into who they’re borrowing from or on the other side, who they’re lending to. Go on the internet, Google at home, see if you can find out any information, and check with somebody who’s already invested with those people. You know, just kind of get their feedback on anything. Borrowers should be willing to let you talk to somebody who has already invested with them or lent them money. 

Sarah: That is such a good point. 

Robyn: If they have a good track record, they shouldn’t have any problem answering your questions. So, just pick it apart and just make sure that you know what you’re going into. And that last thing is just to set realistic expectations and times. All of this will really help in streamlining the process. 

Private loans and other notes continue to be one of the most popular investments held in Self-Directed IRAs, and it’s’ helpful to understand some of the ways to keep the process moving smoothly. If you have more questions about how to lend and borrow funds with a Self-Directed IRA, feel free to call our office at 281.492.3434 and a representative will be happy to help answer any questions.  To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Active vs Passive: What Type of Self-Directed IRA Investor Are You?

Posted on by Quest Trust Company
Estimated reading time: 3 minutes

One of the biggest benefits of real estate investing with a Self-directed IRA is the ability to have extreme flexibility no matter what type of lifestyle you have. Some people are full time investors, and love to spend all of their time searching for new rental properties or their next rehab project! But others simply don’t have enough time. With day-to-day life constantly moving, the thought of taking the time to find a property to invest in may sound daunting, which is why a more passive approach is appealing. The good news is, no matter what type of investing you prefer, Self-Directed IRAs offer something for everyone! 

Investing in What You Know Best

When getting involved in any investment, you always want to make sure you’re doing the best deal for you! Investing in things you are interested in and are familiar with will usually yield the highest returns. When you invest in things you don’t fully understand, you run the risk of doing something wrong. If you don’t like the investment, you won’t have any interest in it, which could mean losing money, as well. Taking the time to stop and think about what you are good at will typically help produce better results for your Self-Directed IRA.

Active vs. Passive: What Works for You?

As mentioned, your lifestyle plays a big role in the way you invest, too. A lot of investors still have a regular day job and can’t afford to dedicate all of their time to their retirement account.  Passive investors can maximize their IRAs by finding investments that don’t take much daily maintenance. For others, real estate is a full time job, and doing a few deals in their SDIRA in addition comes easy.  These active investors can afford to offer more time to their investments. Common things that passive investors would dread, like dealing with tenants or property repairs isn’t as big of a hassle for active investors, since they usually have more availability.

What Investment Are Good For My Investing Style?

So, what type of investments would be good for you? Let’s analyze. As passive investing grows in popularity, more people are maximizing their Self-Directed IRAs with non-traditional passive investments. Real estate notes and private loans secured by property can be a great investment for the busy investor that can’t actively invest in real estate the traditional way. Multifamily and other private entity deals (i.e. include LLCs, limited partnerships, trusts, private stock, etc.) are also quite passive and don’t require much work from the Self-Directed IRA investor, making these great opportunities, as well. 

Active investors may prefer to seek out physical property, using their Self-Directed IRAs to purchase rehabs or potential rental properties. Wholesaling and fix-and-flipping are gaining popularity among IRA investors, too. The beauty of real estate is that it offers safety and security by being a tangible asset. You can drive by a property and actually see, touch, and feel the investment, which gives active investors assurance. Below is a helpful chart that can help you weigh which option might be best for you.

Investing is different for everyone. There will be pros and cons for whatever type of investment appeals to you. In the event something were to go wrong with your investments, understanding what to do will also help you determine if the investment is right for you. Most important thing to do is find an investment that you like and are comfortable with. If you have questions about starting your Self-Directed IRA to invest actively or passively in real estate, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Understanding How to Buy and Sell Real Estate in a Self-Directed IRA

Posted on by Quest Trust Company
Estimated reading time: 4 minutes

Times are changing. The way many Americans have been taught to invest just doesn’t work anymore. With the unpredictability of traditional investing, more people have been turning to tangible assets like real estate.  Real estate investing allows people to diversify their retirement portfolios without having to deal with the uncertainty of the stock market. Being able to diversify your portfolio with tangible assets is a great way give yourself some added financial security in the future, no matter what the markets may look like. 

Real Estate in an IRA

Buying real estate in a self-directed IRA only requires a few steps. Locating the investment of your choosing is the first step. Since these accounts are self-directed, you are responsible for finding the deal. As you are looking for the perfect deal, remember to do the proper due diligence on your investment. Due diligence is extremely important to ensure you are protecting your investment as much as possible.

After finding the property you would like your self-directed IRA to purchase, you will submit investment documents and work with your self-directed IRA custodian to get your deal funded. When using a self-directed IRA to invest in real estate, it is important to understand that the self-directed IRA is the one making the actual purchase.   Although you are the one directing the IRA, the IRA itself will be the purchaser. Once all documents are signed, the funds will be sent by your custodian in the name of your IRA. 

Process of Purchasing a Real Estate Asset

Real Estate purchases with funds from a self-directed IRA differ slightly from your personal funds. Self-Directed IRAs require you to draw up the offer/contract in the name of the self-directed IRA. For example, when a Quest account is the buyer, the vesting will read: Quest Trust Company FBO [CLIENT’S FULL NAME] [IRA] # [ACCOUNT NUMBER]. Making sure the vesting is correct to show that the purchaser is the IRA will help you to protect your investment. Since your Quest IRA account is the buyer, when listing the buyer’s address on any investment documents, you would use the custodian’s address as well. 

Along with drafting up required documents, many times custodians will have their own internal forms that will need to be completed to purchase the investment, too. These forms allow the client to sign off, giving their approval for funding. After all of the documents are signed, the custodian will work with the third parties to close your real estate asset. Remember: the custodian is the legal entity in administration of your IRA, so the client will not have to attend any closings. 

Holding Real Estate in your IRA

Real estate assets in a self-directed IRA come with some responsibilities. You will want to know what to do when you are faced with property taxes or maintenance. We’ve already discussed how important it is to understand that your IRA owns the investment. In the event taxes are due or a repair is needed, the self-directed IRA will be the one that will need to pay for any expenses that are incurred. When paying for an expense, the custodian will usually require a copy of the invoice/purchase order along with a Payment Authorization Form. 

Similar to the self-directed IRA expenses, all profits and earnings must go back into your IRA. These payments must be made payable to your self-directed IRA and should NOT be deposited into your personal banking accounts. Paying for any expenses with personal money or accepting earnings back to a personal checking or savings account would be a prohibited transaction. You can learn more about prohibited transactions HERE. 

Selling Your Real Estate Investment

When you are ready to sell your real estate investment, you will also make sure to work with your custodian. All required forms will need to be completed so that the self-directed IRA can sell the property. Internal forms are typically required here, as well, along with the contract, warranty deed and final settlement statement showing details of the sale. Once completed, all profits will return to the IRA account. From here, you can continue to invest and grow your self-directed IRA for years to come. 

Investing in real estate with a self-directed IRA can be very lucrative when done correctly. Once you understand the steps to purchase property, starting is as simple as calling up a certified IRA specialist to get started. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.