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Common Questions IRA Holders Have About Property Taxes

Posted on December 13, 2021December 13, 2021 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 1^st, 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 31^st, you Texas property taxes are due. The delinquency date (if you didn’t pay, you now owe delinquent property taxes) is on February 1^st.

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.

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

Posted on May 10, 2021June 18, 2021 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.

Buying Real Estate in an IRA: Understanding Why and How

Posted on September 21, 2020June 18, 2021 by Quest Trust Company

Estimated reading time: 5 minutes

As Americans have become more interested and involved in their retirement options, Self-Directed IRAs and the opportunity to invest in non-traditional assets have been gaining popularity. One of the more common alternative investment opportunities inside of a Self-Directed IRA are Real Estate assets.

Many people are looking to diversify their retirement portfolios with tangible assets like Real Estate, after dealing with the often uncertain public stock market. With Self-Directed IRAs, you have the option to invest in all sorts of Real Estate assets such as single-family homes, multifamily and commercial properties, mobile homes, land, and so much more.

Real Estate in an IRA

Holding Real Estate assets in your Self-Directed IRA has many benefits. Many investors enjoy the freedom and security that comes with knowing all of your ‘nest eggs’ so to speak, are not sitting in one basket. Diversifying your portfolio with tangible and non-tangible assets is a great way to give yourself financial security, no matter what the markets may look like in the future.

Self-Directed IRAs also allow you to hold assets with notably high returns on investments. Real Estate investments have been shown to produce results that are double and sometimes even triple the original price. When these transactions are done inside of an IRA– a tax-exempt vehicle– investors have the potential to grow their Self-Directed IRAs to the millions.

When you’re ready to start investing in Real Estate in your IRA, it is important to read up on the structuring rules and limitations of the IRS, in order to protect yourself and your investments. For example, when doing a Real Estate investment in a Self-Directed IRA, many people assume that an LLC or other 3^rd party entity is needed, in addition to the IRA. While this method makes sense for some investors, it is often not the simplest way to structure a deal.

First, know that an IRA has the ability to purchase an investment outright– there is no need for a middle entity. Second, if an intermediary entity is created, you will need to be aware of disqualified parties to your IRA. The term “disqualified parties” refers to those individuals that the IRS has said cannot benefit from or enter into transactions with your IRA.

For more information on how to keep your IRA working for you and protecting your retirement, visit IRS.gov, and check out the many educational resources available to you at questtrustcompany.com. Click here for an article on IRA Prohibited Transactions.

How to Use a Self-Directed IRA to Buy a Real Estate Investment

The process of buying a Real Estate asset in your Self-Directed IRA is quite simple. Since these accounts are Self-Directed, your first step is to locate an investment of your choosing. Once you have selected the property you would like to purchase within your IRA and you have completed the due diligence on your investment, you can complete your investment documents and work with your custodian to get your deal funded.

Unlike when you make a Real Estate purchase from your personal funds, with a Self-Directed IRA, you MUST draw up the offer/contract in the name of the IRA. For example, if the buyer is a Quest client, the buyer’s name on the offer/contract reads: Quest Trust Company FBO [CLIENT’S FULL NAME] [IRA/HSA/ESA] # [ACCOUNT NUMBER]. It is important to make sure the vesting is correct to show that the purchaser is the IRA and to protect your investment. When listing the buyer’s address, it works the same way. Since the IRA is held by the custodian, you would use the custodian’s address.

Oftentimes, custodians will have internal forms that will need to be completed at the time of investment. These forms will require the client to sign, giving their approval on the funding. Once all the proper documents are signed, the custodian will work with the 3rd party closing agent to close your Real Estate purchase. Since the custodian is the legal entity in administration of your IRA, the client will not have to attend any closings. Click here for steps on purchasing Real Estate in your Quest Trust IRA.

Maintaining Real Estate in an IRA

Real Estate investments usually come with ongoing responsibilities, such as property taxes or maintenance, and you will want to know what to do when those situations arise. First, it is important to understand that your IRA owns the investment, and it will need to be the IRA that pays for any expenses that are incurred. You cannot pay for any expenses out of your own pocket, as this would be a prohibited transaction. When an expense needs to be paid, you can contact your IRA custodian and follow the steps that they provide to have the IRA pay that expense.

This may seem like an extra step, but it’s extremely important to maintaining your investment security. Paying any expense out of pocket for your IRA’s Real Estate asset is a prohibited transaction. You never want to jeopardize your growth potential by engaging in a prohibited transaction, so following all of the IRS’s rules and guidelines is imperative. If there is ever a situation that you have questions about, call your custodian and they will be happy to provide you with the education to help you make the best decision for your account.

When deciding to do a Real Estate investment in your Self-Directed IRA, be sure to choose a custodian that is familiar with the investments you plan to do. Time is a crucial factor in investing, especially in Real Estate, so finding a company that works fast and has ample knowledge on your types of investments will save you from missing out on a great deal.

If you ever have a question about purchasing Real Estate in your IRA, call a Quest Trust IRA Specialist at 855.386.4727 and we can answer any questions you may have! 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.

Tips For Managing A Large Real Estate Portfolio In Your Self-Directed IRA

Posted on January 20, 2015November 30, 2018 by questadmin

Estimated reading time: 3 minutesReal estate is a perennially popular investment type for individuals to pursue within their self-directed IRAs. The ability to invest in real estate – both developed and undeveloped properties – can provide an investment and risk profile that generally can’t be mirrored with traditional stock market investments.

But holding real estate within a self-directed IRA can also require a greater level of investment involvement as compared to those other asset classes.

With stocks or mutual funds, the only investor decision is generally just whether to buy or sell. But with real estate, you’ll need to take a much more active role in your investment. And as your real estate portfolio grows ever larger (as is often the case, because many investors view real estate as the ultimate “buy and hold” asset, and therefore tend to add to their positions more than they sell existing investments), you will want to make sure you’re managing your portfolio as efficiently and effectively as possible.

1. Have a Plan.
One of the biggest differences between real estate investments and other investment types is simply the transaction costs associated with making the investments. You can buy stocks, for example, and pay a relatively small commission – and if you quickly change your mind about the suitability of that investment you can sell it the next day and similarly pay a similarly small commission. That’s not the case when it comes to real estate. You need to do your research and planning ahead of time to be comfortable that you’re making the right decision.
You may also wish to consider how subsequent additions to your real estate portfolio in terms of risk and exposure to particular market downturns will affect you. For example, if you own multiple units in a single neighborhood or very small geographic area, then you’re bearing risks (both to the upside and downside) associated with that area’s growth.

2. Stay Active.
By “staying active” we mean that you’ll want to stay on top of your investments and frequently monitor the local market conditions, the condition of the property, and that your tenants are meeting all of their tenant obligations. The value of your investment can erode over time if you’re not paying close enough attention. When you monitor your investments you may also be able to identify opportunities or efficiencies to be gained across multiple real estate investments in your account.

3. Seek Out Professional Assistance.
The larger your real estate portfolio, the more you stand to gain by using a professional property management service. While you’re permitted to perform repair and management related tasks on your own investments, you can’t compensate yourself for your time or effort – doing so would constitute a prohibited “self-dealing” transaction. This is true even if you’re in the business of providing these services to other clients.

But you can hire an outside company or individual (provided they’re not related to you) to perform these services. Not only might that just bring a higher level of professionalism and service to your investments, it can also save you time and energy by not having to manage a growing portfolio yourself.

Selecting Your First Real Estate Investment For Your Self-Directed IRA

Posted on January 13, 2015August 12, 2019 by questadmin

Estimated reading time: 3 minutesLet’s say that like many individuals who are setting up their first self-directed IRA, perhaps drawn to the offerings of custodians such as Quest Trust Company because of the investment flexibility that such an account gives, you’re interested in using your new account to invest in real estate.

What are the next steps? How do you go about choosing your first real estate investment for your self-directed IRA?
What’s Your Prior Experience? When it comes to any new investment, there’s always some degree of learning as you go. But if you have very little or no experience with owning or managing real estate, then you may want to consider a more straightforward property for your first self-directed IRA investment.

What’s Your Investment Budget? Another key consideration is going to be the size of the investment budget for your first property. The more money you have available, the more options you’ll have.

As you formulate your budget, be sure to take into account the fact that any expenses for maintaining the property you buy must also come from within your self-directed IRA. This might be new contributions you are able to make each tax year, but these are subject to the annual contribution limits. Plan to either have your real estate generate enough income to pay for these expenses, or to incorporate other assets into your account in order to cover the real estate carrying costs.

What’s Your Current Portfolio Composition? Regardless of your preferred investment type, you always need to take care to avoid having too much of your portfolio committed to a single asset class. If you already have exposure to real estate in your portfolio (perhaps through banking stocks or REITs), then you want to factor that into your new investment considerations.

What’s the Purpose of the Real Estate Investment? Are you considering this real estate investment solely for potential gains, or do you have other goals in mind? For example, some people use their self-directed IRAs to purchase vacation or other properties that they intend to use themselves once they reach retirement age.

As you consider these types of investments, remember that the IRS regulations prohibiting self-dealing, meaning that you cannot use (nor can anyone in your family use) the property you buy until you take a distribution of it from your account during retirement (or face significant penalties if you take that distribution prior to retirement).

Start Small. Many first-time investors find that the best way to become more familiar with investing in real estate is to start small. This might be a single-family home, or even a condominium. Having a small investment in real estate can give you the opportunity to learn more first-hand, without over-committing your retirement portfolio to this type of asset.

Even though real estate is a fairly unique investment asset, it’s still subject to traditional financial analysis. Make sure you familiarize yourself with the local and broader real estate environment before making your first investment with your self-directed IRA.

Investing In Oil And Gas With Your Self-Directed IRA

Posted on December 18, 2014August 12, 2019 by questadmin

Estimated reading time: 3 minutesWhen people think of the “alternative” investment types they can purchase with a self-directed IRA, they generally think of precious metals, real estate, private equity and private debt. (And let’s be clear, it’s probably unfair to think of these as “alternative” investments because they are fully authorized by the IRS regulations relating to IRAs.) Another asset class, and one that perhaps comes to mind as often, relates to the oil and gas industries.

Because oil and gas investments are less common, let’s discuss some of the basics for making those investments with a self-directed IRA.

Don’t Ignore the Learning Curve. Oil and gas investments are arguably one of the most complicated types of investment that you can make. Concepts of mineral interests, surface rights, working interests and royalty streams are not generally encountered with other investments.

Because many oil and gas investments are relatively illiquid, it’s absolutely essential that you do your due diligence on any potential investment, and fully understand the nature of the arrangement you may be participating in. As with any other investment, don’t rush into an oil and gas opportunity if you don’t fully understand all the relevant terms, provisions and risks.

Types of Oil and Gas Investments. There are a number of different ways to make investments in the oil and gas industries, including not only the commodities and futures contracts, but interests in the refining and drilling companies, as well as investing in land or mineral interests where drilling is taking place (or likely to take place in the future).

Other Energy Projects. Even though we’re focusing here on oil and gas investments, understand that other energy industry projects may provide you with similar opportunities. If you don’t find any suitable oil or gas projects to invest in, consider solar energy projects, wind energy, biofuel, or water energy projects as well.
The developments of just the past few years solidly demonstrate just how much potential there is for oil and gas activity within the United States. But you may also wish to consider other projects that may exist outside the United States.

Tax Considerations. Depending on the type of investment you’re considering, you should check whether there are tax incentives available for investments made with non-taxable funds. If so, and you have enough funds available in your taxable investment account, then you may wish to make the investment outside of your self-directed IRA in order to maximize your benefits. However, many of these tax breaks have expired as domestic development has boomed, so most potential investments may still be suitable for your self-directed IRA.

Also consult with an expert to understand how UBTI (Unrelated Business Taxable Income) might impact your investment. This concept (which can be an issue for self-directed IRA owners when they seek to use debt financing to make an investment – such as getting a mortgage for a real estate purchase) can result in an immediate tax bill for certain types of investments.

The key in all aspects of an oil or gas investment within your self-directed IRA is to do your homework.

A Survey of Different Real Estate Investment Types for Your Self

Posted on December 2, 2014October 31, 2018 by questadmin

Estimated reading time: 3 minutesReal estate can be a great investment option for individuals who either currently have, or are interested in opening, a self-directed IRA. An IRA with a self-directed custodian such as Quest Trust Company will open up the possibility of investing in all legally authorized asset classes, rather than the limited subset of choices that traditional custodians (such as banks and discount brokers) offer. Along with real estate, an individual can use a self-directed IRA to invest in certain types of precious metals, as well as private equity, debt and mortgage instruments.
Because most of us are at least somewhat familiar with the basics of real estate, if not real estate investing, this is one of the most popular choices for self-directed IRAs. Below is a survey of some of the most popular real estate investment types, as well as some of the pluses and minuses of each.

1.   Single Family Homes
Single-family homes are perhaps one of the easiest ways to begin investing in real estate. You only need to do due diligence on a single structure and property prior to investing, and you only have to worry about repairs and upkeep, as well as finding a tenant, for a single location.
But single-family homes offer no diversification in terms of location or tenants. A single-family home only has one tenant, so if things go poorly with that individual, your investment returns will take a hit. Consider, for example, what would happen to you or your investment returns if your property sits vacant for several months (or more) between tenants.

2.   Multi-Family Housing
Some self-directed IRA investors choose multi-family housing units (which can include duplexes, large single-family homes that have been subdivided into multiple units, or even apartment buildings) in order to gain diversification. When you have a dozen units in your portfolio, for example, your returns are not necessarily impacted significantly when one of the units has a short-term vacancy.
But with multi-family properties you are more likely to need professional assistance with management. Be sure to factor these costs into your pre-investment financial calculations.

3.   Commercial Properties
You can do away with the concerns over residential tenants altogether by using your self- correcting IRA to invest in commercial real estate. Possible commercial real estate investments include office buildings, storefronts, and even undeveloped property that you believe will eventually be suitable for commercial development.
These types of investments can prove lucrative, but they do require a higher level of expertise and knowledge of local market conditions than is generally required for residential investments. Most of us simply don’t have any first-hand experience with commercial properties to have an immediate reaction to the suitability of the potential commercial real estate investment.

4.   Real Estate Investment Trusts and Private Mortgages
Finally, there are other ways to participate in the real estate investing markets without having to hold property directly. You can use your self-directed IRA to invest in real estate investment trusts (essentially an investment vehicle that owns and manages investment properties), or even originate mortgages to private individuals and businesses who wish to finance their purchase of real estate.
Regardless of the type of real estate investment you may select, be sure to understand all of the relevant points with any potential transaction, and that the investment is a good fit for your overall portfolio.

FAQ Real Estate in your IRA

Posted on October 30, 2013 by Beatriz Oliva

Estimated reading time: 6 minutesHow fast can Quest Trust Company purchase an investment?

We pride ourselves in our fast processing time of 24-48 hours. Please note that our processing begins when we have received the completed Direction of Investment form as well as any supporting documentation (example: properly vested sales contract).

How can I take funds out of my IRA to buy Real Estate, without having to pay taxes and penalties?

When using your IRA for the purposes of purchasing Real Estate, you are not actually taking the funds out. Similar to how your IRA can purchase an asset of a stock, your IRA can also purchase an asset of Real Estate. Quest Trust Company specializes in helping our clients purchase RE through their retirement accounts.

What are the differences between buying real estate personally and buying real estate with my IRA?

a) Title of the property: When using your IRA for RE investments it must be titled in the name of your IRA. When using a Quest Trust Company, the title will read “Quest Trust Company, Inc. FBO (Your Name) IRA (Account number)”

b) Funds- When your IRA is used to purchase an asset, the funds must come from the IRA. This includes any expenses that are related to the investment. Likewise.,, any gains or earnings must go back to the IRA.

c) Signatures- Because investments are made in the name of the IRA, Quest Trust Company is actually the one that signs the documents.

Can my IRA purchase Real Estate I currently own?

No. Although the IRS has very few restrictions on the types of investments which are permissible in an IRA, there is a list of “disqualified persons” who are prohibited from dealing with your IRA or benefiting from its investments. The list of disqualified persons includes you, your spouse, your parents, your children, their spouses, certain business partners and key employees and persons providing services to your plan, among others. Interestingly enough, the definition of disqualified persons does NOT INCLUDE non-lineal descendants or ascendants, so if the transaction is an arms length transaction your IRA may be able to transact business with your brother or sister, aunt or uncle, cousins, etc. However, you should be aware that there is an element of danger in transacting business with any person in whom you may have an interest which affects your best judgment as a fiduciary of your IRA, as this could be considered to be a prohibited transaction.

Are the gains or income taxable from IRA Real Estate investments?

The answer is NO – in most cases. If an IRA buys Real Estate and then sells it at a profit, all income generated while it was held in the IRA and all the gains resulting from sale WILL be either tax-deferred (traditional IRA) or possibly tax-free (Roth IRA), IF the purchases were all cash with IRA funds.

However, if the IRA purchased Real Estate that is debt financed, the IRA could be subject to taxation. The tax applied is called Unrelated Debt Financed Income tax or UDFI tax.

Can my IRA make loans to others who want to buy Real Estate?

Yes, your IRA may loan to any person, as long as they are not a disqualified person. These loans involving Real Estate are generally referred to as Promissory Notes. They are usually secured by the deed to the property that serves as collateral for the loan if the borrower fails to meet the loan obligations. For more Information visit our Promissory notes webpage.

Can I partner with my IRA or with other peoples IRAs?

Your IRA can always partner with other people individually or with other people’s IRAs. Under certain circumstances you personally may be able to partner with your IRA. However, the burden of proving that you received no impermissible benefit from your IRA’s participation in the investment will be on you if the IRS ever questions the transaction. The transaction still must be an arms-length transaction, and the investment remains subject to the same restrictions as if the entire investment were in your IRA. In general it is better to separate your IRA’s investments from your own investments.

I only have a small IRA. How can I buy real estate?

There are at least 4 ways you can participate in real estate investment even with a small IRA. First, you can wholesale property. You simply put the contract in the name of your IRA instead of your name. The earnest money comes from the IRA. When you assign the contract, the assignment fee goes back into your IRA. If using a Roth IRA, this profit is tax-free forever! Second, you can purchase an option on real estate, which then can be either exercised, assigned to a third party, or canceled for a fee. Third, you can purchase property in your IRA subject to existing financing or with a non-recourse loan from a bank, a hard money lender, a financial friend or a motivated seller. Profits from debt-financed property in your IRA may incur unrelated business income tax (UBIT), however. Finally, as mentioned above, your IRA can be a partner with other IRA or non-IRA investors.

Can an IRA buy debt-financed property?

Yes. Any debt must be non-recourse to the IRA and to any disqualified person. An IRA may have to pay UBIT on its profits from debt-financed property. In general, taxes must be paid on profits from an IRA-owned property that is debt-financed, including profits from the sale or disposition of the property, in the same proportion that it had debt. For a simplified example, if the IRA puts 50% down, then 50% of its profits above $1,000 will be taxable. Although at first this sounds terrible, in fact leverage can be an extremely powerful tool in building your retirement wealth. The same leverage principle applies inside or outside of your IRA. You can do more with debt-financing than you can without it.

Can I use my IRA funds to buy a foreclosed property?

Yes, IRAs can indeed purchase foreclosures. However, you will want to be aware of the specific foreclosure purchase process. Contact our office for more information!

If I am a Realtor, can I receive a commission for property bought or sold by my IRA?

No, for the same reasons stated in the prior answer. Anything that creates a possible conflict of interest with your IRA is likely to be a prohibited transaction. Why take money that is tax-free or tax-deferred and pay taxes on it now anyway?

Can I cut the funding check directly to the seller and then get reimbursed?

No, because this is an IRA owned property, all of the funds must come directly from the IRA. You may complete a Direction of Investment form that will instruct Quest Trust Company as to where to send the funds.

Can I receive a fee for managing property owned by my IRA?

No. The prohibited transaction rules are intended to make sure that you receive no current benefit from your IRA other than as the beneficiary of the IRA. Investments must be arms-length and exclusively for the benefit of your IRA.

Can I live/work/vacation in a property my IRA owns?

No, this would be considered a prohibited transaction. For a complete guide to Prohibited Transaction, click here.

Can I collect the rents for my IRA rental property?

Yes and No. You can have the renters forward the rent checks to you, BUT made payable to your IRA. They cannot be made out to you, nor can you deposit them, even if you plan to reimburse your IRA. If you do collect the rent checks, make note, and forward the check over to Quest Trust Company.

Understanding How Short Sales Work

Posted on October 18, 2013August 12, 2019 by questadmin

Estimated reading time: 3 minutesIn order to get the most from your self-directed IRA, you’ll want to consider all the different types of investments that are permitted within your account. In fact, the opportunities that come with a self-directed IRA at a custodian such as Quest Trust Company is likely to be what got you interested in this type of retirement account in the first place.

Being able to invest your retirement nest egg in things such as real estate, private equity and precious metals remove the self-imposed limitations of traditional IRA custodians. Within some of the broad investment classes there may be some particular investment types that remain a bit of a mystery. For example, many individuals have gone through the process of buying a home, so they’re likely to feel at least somewhat comfortable with the idea of buying residential real estate for investment purposes with their self-directed IRA. But the process of buying so-called “short sale” properties might be wholly unfamiliar to them.

There is sometimes a temptation to think of real estate foreclosures and short sales as being virtually the same thing. While it’s true that both involve the purchase of properties in which the prior owner was not able to fulfill their mortgage obligations, the processes are actually quite different. Foreclosure is a well-defined legal process that provides certain guaranteed rights to the property owner. On the other hand, you can think of a short sale process as a debt renegotiation.

In a short sale, the property owner (or his or her representative) negotiates with all mortgage lien holders to allow the property to be sold for an amount that is less than the aggregate outstanding loan balances. After a short sale the prior owner will sometimes (but not always) be relieved of any further financial ability.

It’s important to understand that for the creditors on a short sale property to agree to accept less than they are owed, they generally want to make sure the short sale process goes as smoothly and quickly as possible. This means that to maximize your chances of having your short sale offer except, you must present the most attractive offer to those creditors. This generally means that your transaction time frame is flexible – both in terms of being able wait for the creditors to evaluate your offer, and to be able to close on the transaction quickly once it is accepted – as well as being able to pay cash or have no financial contingencies that could prevent you from closing the short sale.

As a result, the process for a distressed homeowner to apply for (and get a decision on) a short sales is generally shorter than for a foreclosure. Still, when you’re looking to invest funds from your self-directed IRA, you need to plan for a longer transaction time frame than if you bought a similar property on the open market.

A real estate agent who’s been through the process before it can provide invaluable assistance if you never purchased a short sale property before.

Things to Consider Before Investing Abroad

Posted on October 14, 2013June 7, 2019 by questadmin

Estimated reading time: 3 minutesFor those individuals who wish to expand the range of investment opportunities they have available, a common approach is to invest outside of the United States. While it’s possible to gain international exposure through domestic markets (such as by buying stock in U.S. companies that have a large multinational presence, or buying shares of foreign companies that are traded on U.S. stock exchanges), some investors are looking to commit more directly to investment opportunities outside the United States.

Before you devote a portion of your investment portfolio or self-directed IRA to investments abroad, here are some things to consider.

Publicly Available Information. Many of the regulations that govern the U.S. stock market have one thing as their goal – the protection of investors by making sure they have as much information as possible about potential investments. These public company disclosures are a necessary part of being able to offer securities on U.S.-based exchanges.

In large part, these types of investor protections don’t exist in most other countries around the globe. So before making any investments abroad, be sure you have all the information you need to make an intelligent and well-informed decision.

Taxes. Making investments outside of the United States can trigger tax liabilities in those countries. While tax treaties between the U.S. and certain other countries can reduce that liability, that’s not always the case. It’s therefore essential to consult a tax expert so that you know exactly what to expect in tax liabilities. It’s also important to note that the tax landscape abroad can change over time, potentially to the detriment of your investments.

Currency Exchange Risk. Similarly, currency exchange rates fluctuate over time, and sometimes these fluctuations can be significant. And even if you have any long-term horizon for your foreign investment, at some point you’re going to need to bring the money back into the United States. If the dollar has strengthened in relation to the currency of the country you are investing in, then you’ll be losing a portion of your investment gains simply because of the currency exchange. There are ways to hedge against this risk, but doing so can greatly increase the complexity and costs of investing abroad.

Ownership and Currency Transfer Restrictions. Some countries have laws that restrict the types and amounts of assets that non-citizens can own. For example, numerous areas throughout Europe and Central America restricting the ability of foreigners to own real estate outright. or to own more than a minority interest in certain local industries. Some countries also limit how much money can be transferred outside of their borders, although this type of restriction is less common than the real estate ownership limitations. Before you go too far in planning an investment in a particular foreign country, be sure there are no legal limitations to you reaching your goals.

Investing abroad can be highly rewarding, but only if you understand all of the potential obstacles and challenges you may face.