IRA that allow real estate investments

[Craig Schiller]

I am trying to help a friend use some of his and his wife's IRA money to buy land. There would be no debt and I can help him avoid the pitfalls - UBTI, UBDFI, PT.. What I don't know any longer is a good IRA custodian to advise him to use. I looked on YELP and didn't see good things about Pensco.

Does anyone know a "good" IRA that would hold the real estate? "Good" here means, would meet whatever the legal requirements are but be a good value - not too expensive. The couple has been out of work and needs to limit their expenses.

Thanks -

Craig Schiller, CPC

[QDROphile]

April fool.

[Guest harlyd]

There are 2 types of IRA models that allow for real estate investments. 1 which would include pensco where the custodian holds the money and send money to make the purchase this works as there are lots of people who use it, but it has a drawback. Every time you want to do anything to the property they have to issue the funds which can be a hassle, especially if it is needed urgently. You can't use your own funds since that would be a prohibited transaction.

The 2nd way which I think is more efficient is to have the custodian purchase an llc, then the llc can do all the transactions its more efficient and saves money in the long run. Its also know as the checkbook ira. There is a premium up front to set it up, but once set up you don't pay custodian fees every time you make a transaction. So in the long run you save.

[Guest Rajeev]

while I agree that there are two models as Harlyd has pointed out... please note that what was forgotten to be explained that the 2nd model, requires the LLC to be valued on an annual basis for the purposes of IRA account valuation, and while there is no clear definition of what valuation model is acceptable by the IRS, except in the case of a taxable event (i.e. distributions, Roth conversions and any other), where the IRS is clear in stating that a Fair Market Value is required... LLC book value is generally not its Fair Market Value, and a specific appraisal has to be carried out in accordance with the Fair Market Valuation methods for an LLC.

Now to the question about custodians:

There are about 20+ odd custodians around the country and the service level for all of them vary greatly, and in general no one is better than the other... In terms of Assets Under Custody, Pensco Trust Company, Equity Trust Company are the largest (10B+) followed by Millenium Trust Company, Kingdom Trust, Horizon Trust, etc.. there are more... but not listing here...

There are about 10+ who work as administrators (i.e. not regulated and other than contract liability, no other liability or audit-ability). If you are either a B-D or an RIA (then under Investment Advisor Act of 1940 you cannot use an administrator for the IRA's you have to work directly with a custodian -- See IA Rule 206(4)-2)

Our firm and myself have experience with working with a good number of them, and as mentioned earlier, none of them is perfect and once we know how to navigate their processes, it is a cake-walk...

Hope this helps...

[John G]

I always want to ask the question...Why? The pool of potential investments include stocks, stock options, warrants, bonds, perferred stocks, ETFs, REITs, mutual funds, index funds, etc. What is the compelling need to buy land?

The arguement against real estate includes: potential penalties if found that the transaction is inappropriate, lack of flexibility, difficulty with use and ongoing payments that are needed for things like property taxes (or maintenance if you are talking about anything beyond land), lack of diversification, illiquidity, etc.

This is not a good area for self-help investment decisions.

If you don't have outside cash to invest in land or real estate, then I don't think you should even spend a minute thinking about real estate or land as an individual with a Roth or IRA.