Partnering for success in real estate with a self-directed IRA

How a real estate deal worked for a self-directed IRA

Since I did not have the entire $120,000 purchase price for the five acre property in my retirement plan, I found a friend, we’ll call him Craig, to purchase the other half.

We titled it as a tenancy in common: Craig’s IRA administrator, FBO (For the Benefit Of) Craig’s IRA , as to an undivided 50% interest, and NuView IRA 401k plan, Glen Mather participant, as to an undivided 50% interest. Both the 401K plan and Craig’s administrator sent their pro-rata funds to close the property.

It turns out that the property was in the foreclosure process, and the current tenants wanted to stay in the home as renters. They also expressed a desire to buy the home in the future, which provided a great opportunity to structure a lease/option contract.

We structured the deal at $1,200 per month rent and $400 per month that would be set aside to purchase the property within 24 months for $180,000. We agreed that the $5,000 they put down on the agreement would be used to buy and install a new air conditioning system.

After the first year went by, the tenants stopped making payments. Rather than to go through the process of finding a new renter for this rural property, we decided to spend the $15,000 needed to upgrade the property to make it more appealing for purchasers. Mostly, just cosmetic fixes were made, including $2,500 for bringing in clay and resurfacing the dirt road from the property edge to the house.

Unlike most of the rehab and re-sales Craig and I had done in the past, I felt that sticking a “For Sale” sign in the yard would not work in such a remote locale. To reward the real estate agent who found the property, we asked him to be the listing agent so he could have a chance to earn another 3% commission. We listed the property above our original option amount – it was raised to $215,000. We had multiple offers and put it under contract within 10 days for the amount of $214,500.

After subtracting the original purchase price, the cost of repairs, and property taxes, as well as adding in the rental receipts and deposit, we made a total profit of over $77,000 in about 15 months.

What made this deal work for the self-directed IRA

What made this deal possible was a Realtor who found the opportunity, a partner that had the funds to close quickly, a knowledgeable real estate investment club resource, and a rental contract that provided the renter with an incentive that was attractive to each of us. In the end, when the rental contract went into default, Craig and I were able to fix up the property and reap rewards we didn’t forecast.

Oh, because we were investing with my 401k and Craig’s IRA, all $77,000 in profit is tax deferred – and ready for the next investment.

In order for you to make a similar investment in your IRA, just follow these easy steps:

Locate a self-directed IRA administrator/custodian who is knowledgeable and accessible to answer questions and handle your account

Submit an IRA application and fund it via a transfer, rollover, or contribution

Locate your investment and obtain the proper titling instructions from your administrator

Submit a purchase request and other necessary documents for your administrator to sign off on

The funds are wired from your IRA to the title company – and your IRA investment is complete
With a self-directed IRA, your retirement dreams may have a much better chance of coming true.

About the author:

Glen Mather is president and founder of NuView IRA, a passive administrator and custodian that specializes in holding alternative assets including real estate, mortgages, and other investments. 877-259-3256