Rental Property in IRA

[wsp]

Client is looking to buy a condo using IRA funds. From what I've read on topic the benefit is only there for ST or flipping opportunities as the laws preclude any sweat equity gains from occurring. And also understood that associated costs (property manager, appraisals every 2-3 years, and trust expenses) make this a difficult asset to own....UNLESS renter is known commodity (ie propertys best interests are maintained). Does the fact that a property manager and outside agents are hired for other positions allow the client to rent to someone who would otherwise be a prohibited party? ie his daughter.

Whole thing makes no sense to me but he's more concerned about diversifying his portfolio, while at same time getting into rental property without having to deal with unacceptable tenants, then he is at making money.

What other things must he consider? Would it be different if it were a 401k investment rather than an IRA? Seems to me rules remain the same, but as trustee he would be able to avoid trust expenses but appraisals and property management expenses are still there.

Anyone else doing this?

[Guest getaxa]

The only custodian that I could find that allows property in an ira is http://www.trustetc.com/real-estate-ira/real-estate-ira.html -- May sure you do your DD, I don't know anything about that company.

[namealreadyinuse]

Can't buy it from, sell it to, or rent to related parties - there is no exception for arm's length transactions. Expenses have to come from IRA (or annual contributions). Tell him he should buy a REIT instead if he wants RE diversification.

[wsp]

Thanks for the input. End solution likely will be that he's going to start a 401k, roll part of IRA into plan, take a loan for down payment, finance the rest, and then after age 59 1/2 take a distribution to pay off the loan. Going through big hoops just to buy a condo but to each his own. This way though it's much easier to control and he won't have to hire all of the outside parties to manage things....besides the intial desire to have child live in condo.