Say I deposit $10,000 into a new Self Directed IRA account. Then what...? Am I supposed to use some of that money as down payment on the investment property for it to qualify as being in, or owned, by my IRA? What name goes on the purchase contract? Hows does this all work? Thx
This is one of those subjects where a whole book can be written. But here is the first flaw in your present concept:
If you use your IRA money for down payment, this means that the majority of your profit will be made from the borrowed portion of the real estate. Therefore only a small percentage will go to the IRA's growth. The remainder will be taxable.
These are tricky, lots to learn.
if your IRA completely funds the purchase, then when your IRA custodian sells the property and the profit is deposited into your IRA, that profit is tax free.
If your IRA is the kind that taxes withdrawals, that is when your real estate profits will be taxed.
Ok so the objective is to fund the purchase 100% by the IRA. I guess that means it will be awhile till I can accumulate enough IRA money to buy an average sized house. Seems like maybe this strategy is more for wealthier investors..
Can IRAs fund the purchase of real estate tax liens or foreclosure/short sales?
By the way, the 'IRA custodian' can sell the property for me, which means I wouldn't need a realtor? Wow this is complex..
yes, it can be quite complex. This is one of those things you and your custodian really have to know what to do.
But don't get scared off, there are ways of structuring some deals to get leverage. For instance, suppose you have an option for $1000 and is used to make $10,000 on a deal. If you structure your sale contract where you are selling the option, rather than the property, for $10,000, then all of that can go back into the IRA untaxed.
Read and study. This is complex.
You need to read and research in this area. Generally you cannot co-purchase with the SDIRA although it can partner with other folks. Everything made goes back into the fund.
I think the recommendation for options is a good way to build the fund. As is assignments
Also do a through search of SDIRA custodians, as fees vary greatly. There are also other program like the solo-k, and Roth vehicles.
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Have you done any research in to the IRA/LLC setup? That might be a good way to go for you. You wouldn't have to deal with the Custodian and you would have more freedom to structure a deal.