Real estate investing with IRA money (funds, pay, million, rent)

[rhbj03]

I've been reading up on this new concept (new to me anyway). I understand this involves having a management company do all the buying and managing for my benefit. I have a few questions about this:

1. The companies I looked at don't give hints of what their service fees are. I rather have an idea before talking to anyone. What might be a reasonable fee for the initial set up, and the quarterly management?

2. Besides fee levels, are there significant differences between companies?

3. Suppose an account has 1 million equity, does it have the same insurance as IRA account (now typically around 50-100 mil among the major service providers)?

4. What are the biggest names in this area? (For example, the Schwab/Fidelity/Etrade/Scottrade equivalent)

5. Overall do you think it's worth investing IRA money in this way?

Thank you.

[MrRational]

Originally Posted by rhbj03

I've been reading up on this new concept...
Overall do you think it's worth investing IRA money in this way?

No.

REIT's as part of a larger overll investment portfolio are a different discussion...
but effective and profitable small time landlording requires seeing it as a business
and a very hands on retail business at that ... NOT as some sort of hands off investment.

[aslowdodge]

Op
Are you talking about investing in real estate to a self-directed IRA?

[rhbj03]

Originally Posted by aslowdodge

Op
Are you talking about investing in real estate to a self-directed IRA?

yes. what is your view?

I just don't quite get how this can be a clean management compensation... Some properties are hard to manage, some are easy; some tenants are great, and some are worst...

[Lowexpectations]

It you are talking about physical properties you own I think you lose a lot of the tax benefits of writing off interest and expenses iirc

[Petunia 100]

If you intend to do this, give some thought to how you will handle your RMDs when the time comes.

[leastprime]

YMMV.
I'd consider something more liquid and diversified, ie STWD, GOOD,
YMMV I do not own either.

[aslowdodge]

Originally Posted by rhbj03

yes. what is your view?

I just don't quite get how this can be a clean management compensation... Some properties are hard to manage, some are easy; some tenants are great, and some are worst...

Before you set up a self directed IRA (make sure you qualify) find a real estate market and a property manager that you fully trust and feel they will do a good job-just as if you were doing this without the IRA. Once you do this you can set up your IRA then all costs and revenues are run through the IRA. I set up mine because my mutual funds had gone nowhere over the years. of course the stock market took off after I pulled out and converted to a self directed ira and bought rentals.

That said in my situation my real estate has outperformed the market had I stayed in.

Expect the approximate costs if you do this
about $1500 to have someone help you to set up a self directed checkbook ira. Once this is set up you open a checking account you can write checks from. Remember this is a ira and is seperate from you so you cannot make personal withdrawals or deposits except where allowed by the IRS. It is a seperate entity.
When you find a rental you will pay for it from that account.
expect a property manager to charge 6 to 12% of the gross rents.
All expenses such as repairs are paid out of this account
all revenues such as rent go into this account.
DO NOT COMINGLE FUNDS
You do not file a tax return. You do not get to depreciate the rental. You do get to deduct expenses directly from revenue. For example if you replace a roof, you write it off against revenue immediately, You do not have to spread out the write off over of period of years like you would if you owned the rental personally. Ultimately when you retire you will be able to make withdrawals from this IRA as per IRS to spend as you please.

The property manager handles everything for you. They will screen tenants, set up repairs as needed, etc all for that percentage.

The part you need to do is find a rental that meets your needs. Not in a war zone with lots of headaches for you and manager, but also meets your financial needs.

My typical rental I spend 40 to 50K buying it, 5 to 15K rehabbing it in a C class blue collar area. After rehab I generally pick up about 30 to 40% increase in value in the property. After that my average ROI is 13 to 14% each year.

My self directed IRAs are roth so when I retire I will start withdrawing the rental income tax free.

[aslowdodge]

Oh by the way you buy your rental just as if you were home shopping yourself. The difference is all costs are paid by the IRA. You will write the checks yourself on behalf of the IRA. You will not be involving any big company like Vanguard or schwab. You are the manager.
To insure your money you will obtain property insurance through the IRA. You will do the purchase conventionally getting title insurance etc.
BTW I helped a friend that had a stockbrokers license get out of the market and convert. She now has 8 rentals in her IRA and is planning to add 2 a year through rental income accumulation and her retirement contributions.

[freemkt]

Your IRA must be large enough to cover all acquisition and operating expenses - you cannot finance an IRA rental property and all operating expenses not covered by rental income (e.g. initial expenses before income is realized) must be covered by the IRA.

Alternatively, if your IRA is not large enough for acquisition, you can pool your IRA money with other investors for acquisition; there are firms which specialize on pooling IRA funds for real estate investing.