Due Diligence Checklist for Self-Directed Real Estate IRA Properties

Real estate deserves consideration in anyone’s long-term investment portfolio. Some investors are content to expose themselves to real estate via REITs and straight-ahead stock companies within a larger retirement portfolio. Many of our own clients find they can get better returns on investment via direct ownership of investment properties within their own retirement accounts, using a Self-Directed IRA, Self-Directed Real Estate IRA, Self-Directed Solo 401(K), Self-Directed SEP IRA or Self-Directed SIMPLE IRA account. They simply use the cash in these accounts to purchase investment property and hold it, with their IRA collecting rents and paying expenses.

After working closely with hundreds of successful Self-Directed IRA landlords – men and women who own real estate directly within their retirement accounts – we have come up with some important hints and tips for finding profitable investment properties with a relatively low degree of risk.

  • Compile your own comps. Do not trust the big internet sites like Trulia and Zillow for estimates on what any specific home may be worth. First, everyone else has access to that data, so you will not be at any significant advantage by relying on it. Second, there is no substitute for strong local knowledge of the neighborhood – something that no large nationwide database can provide. Compile your own comps, or work with an agent who has extensive experience with homes in this particular area. Better yet, consult a professional appraiser.
  • Hire a building inspector. Most real estate investors – even experienced ones – inspect just a few homes a year at most. A professional building inspector visits hundreds of homes each year. Few ordinary investors can match that kind of experience, which can normally be had for just a few hundred dollars. That experience can also save you from incurring thousands and even tens of thousands of dollars in needed repairs and renovations, which could destroy the profitability of your Self-Directed Real Estate IRA property.
  • Work with a title company. This is the most reliable way to ensure that your new Self-Directed Real Estate IRA investment property has a clean title, free of encumbrances from unpaid property taxes, contractors’ liens, old mortgages, claims from heirs and estate beneficiaries, lawsuits and judgments or pledges as collateral.
  • Be skeptical of pro forma Occasionally, sellers will show you pro forma accounting documents that show various earnings and profitability projections. These are nice but consider them an absolute ‘best case’ presentation. In 99 percent of actual cases, the Self-Directed Real Estate IRA property will show income and expenses substantially lower than what the pro forma numbers assumed.
  • Look over key property management documents. You will want to look at the previous owner’s rent rolls and compare them to bank statements. Do rental collections match the actual bank statements? Are rents claimed on the rent roll but do not show up on actual bank statements? Does the discrepancy match the non-payment rate?
  • Account for renters’ deposits. State laws vary, but the general rule is landlords must keep renters’ security deposits in segregated accounts. Before you purchase a rental property, ensure your account for each tenants’ deposit in full and that you have access to these accounts, so you can release them to the renter as required by law, or use them to offset expenses that the deposits are intended to cover.

 Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Charlotte Self-Directed Real Estate IRA Investors Tapping a Booming Market

Real estate has been hot in recent years – and Charlotte, North Carolina, where American IRA, LLC maintains one of our two offices – is no exception. Recent sales figures are in, and Carolina Multiple Listing Service data for May of 2018 is showing an average sales price of a home in the general Charlotte region was $299,690. That is a jump of 11 percent over May of 2017.  This has been great for Self-Directed Real Estate IRA Investors.

Want a Self-Directed Real Estate IRA property within the city limits? Be prepared to pay even more: The average price of a Charlotte home was $332,700 in May, up a solid 13 percent over the preceding twelve months. The median sales price was up 9.5 percent over the same period.

Why the gap between the median and mean sales prices? Part of it is due to the rapid growth of incomes and wealth levels of Charlotte’s most affluent suburb: Davidson. This town of 12,700 residents has recently been named the wealthiest town in North Carolina, according to the most recent Census Bureau numbers.  The median annual income in Davidson, $109,907, is more than double the North Carolina median income of $48,256. And more than a quarter of households in Davidson earn $200,000 or more, compared to just 3.9 percent in the rest of the state.

Meanwhile, the number of homes available for sale in and around Charlotte is starting to fall. Inventory is down 20 percent between May 2017 and May of 2018, according to MLS data and reporting by the Charlotte Observer. The biggest demand for real estate in the Charlotte area seems to be towards the lower end of the price range, say local real estate observers. Self-Directed Real Estate IRA investors need to act fast.

The combination of increasing prices and tightening inventory appears to have taken some of the steam out of the Charlotte regional real estate market.  Despite the low inventory, it is still a great time for Self-Directed Real Estate IRA investors.  The number of homes sold has increased over the past year nationwide, but the number of units sold in Charlotte last May has fallen by 20 percent compared to a year ago.  However, lower inventories may well help support prices going forward, as buyers must compete for fewer and fewer units actually up for sale.

The lower total inventory does not mean buyers are not snapping up homes quickly. Indeed, Self-Directed Real Estate IRA investors may find this a good time to sell: The average time from list to close has fallen from 97 to 87 days in the past year.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Beyond Rent Payments – Creating Multiple Streams of Income Within Your Self-Directed Real Estate IRA

Most Self-Directed Real Estate IRA investors already know that you can charge rents on investment real estate, which can be reinvested for retirement or used to support current projects.

But professional property managers also understand that your income opportunities are not necessarily limited to rental income. For Self-Directed Real Estate IRA property owners who are creative and resourceful, there are endless possibilities for generating ancillary income streams from real estate investments, over and above the normal rental income.

This is especially true for multi-family units and properties where there is a significant amount of land.

Here are some ideas we have seen on different kinds of properties:

  • Vending machines
  • Coin and card-operated laundry
  • Parking space rental for special events at nearby venues
  • Garages
  • Storage units
  • Short-term lease premiums
  • Water delivery service
  • Mineral rights
  • Advertising/billboards
  • Thoroughfare/passage rights
  • Operating a bodega, snack bar or convenience store primarily for residents, or creating one on site and leasing it out to a third-party vendor
  • Buying nearby real estate space and installing needed businesses
  • Farming and ranching
  • Leasing for special events
  • Pest control fees
  • Valet trash collection
  • Delivery services
  • Concierge services
  • Car detailing/washing
  • Whole building WiFi
  • Recycling programs
  • Bike storage
  • Pet rent fees (excluding service dogs and therapy dogs)
  • Communication tower rental
  • Rental furniture
  • Cable and internet bundling service deals

.. and many more!

Of these, vending machine income is among the more common options, and can work well even in smaller apartment complexes and in both residential and commercial contexts. Today’s landlords have more options that can efficiently generate noticeable additional income within their Self-Directed Real Estate IRAs with minimal cash outlays or effort required on the part of the investor.

Do not limit your thinking to snacks and soft drinks: Today, vending machines commonly dispense everything from toilet paper to cell phone chargers.

Increasingly, the trend in recent years has been for Self-Directed IRA landlords who own multi-family units to partner with specialized laundry room vendors, rather than attempt to do all the legwork themselves.

Having some furniture, you can rent out with a unit also increases your flexibility to serve young families, people traveling for work and relocators, while still getting some income for your trouble.

Trash collection fees, lease buyout fees, late fees, non-sufficient funds fees and other reasonable fees can also provide a bit of additional cash flow to cover expenses.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

Be Quick: Buying Self-Directed Real Estate IRA Properties in a Competitive Market

When legendary baseball player Ted Williams – arguably the greatest hitter who ever lived – became a coach and mentor to younger players, he had two pieces of advice:

  • Watch the ball
  • Be quick!

While Self-Directed Real Estate IRA investors do not have to try to hit a 100-mile-per-hour fastball from Bob Feller, like Williams did, they still have to be quick: Homes are spending 32 fewer days on the market than they did just a few years ago, according to Buyers are snatching up properties as fast as they come on the market. And Self-Directed Real Estate IRA investors need to swing a very quick bat in order to have a chance to acquire the assets they need to provide their retirement income portfolios down the road.

Here are some expert tips on how to invest in the fastest housing market we can remember.

  • Do not rely on traditional lenders, unless you are pre-approved. The average conventional loan now takes nearly two months to underwrite and process according to Self-Directed IRA and Self-Directed Real Estate IRA mortgages tend not to take as long, since they must be non-recourse loans, they are underwritten based on the value of the property, rather than on income, which can be difficult to document.

But conventional mortgage companies and garden-variety banks are not known for speed in processing. Do not wait until you are bidding against multiple qualified buyers before lining up the financing or getting cash on hand.

  • Pay cash. This is the ultimate dealmaker: Cash is and always will be king, when it comes to getting a deal through quickly. If you have the cash to buy a home on the spot, you have the leverage to get a better price. This price advantage translates to a profit advantage down the road for your Self-Directed Real Estate IRA.

It also leads to a lot less wasted time. Every deal that falls through because you are too slow represents a loss in terms of wasted time and effort that you could have spent on a deal that succeeds.

  • Include a check with the offer. Ideally, you can attach the check for the full purchase amount made out to escrow along with the offer. If not, or if you need to attach some strings to the deal, attach a check for a few thousand dollars in “earnest money.”
  • Focus on homes that have been on the market for a while. Many times, the sellers are frustrated. They know they have priced their homes too high – but they probably are not getting too many offers these days. Buyers are flocking to the new listings. You may be able to get a good deal.
  • Do not let it slip you are in a hurry. Sellers can smell desperation and will drive a harder bargain. Make a good, fair offer at a discount from the home’s intrinsic value (you are an investor, not a retail buyer, after all), and be willing to walk away if the seller walks. If they know you are willing to walk, they are more likely to accept a reasonable offer immediately.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at

What investments can be done with a Self-Directed Real Estate IRA?

The much shorter answer to the question “What investments can be done with a Self-Directed Real Estate IRA?” is almost anything. In addition to actual real estate, you can instead purchase other investment vehicles such as tax liens, mortgage notes or real estate options. These investments allow you to profit from real estate without owning the land.

The IRS does not publish a list of permitted investments, but only the short number of fellow investors or people you may not do business with who are called “disqualified persons.” These forbidden people are yourself, your spouse, parents, children, grandchildren and spouses of your children or grandchildren. However, because IRAs are legally independent entities, you may do business with anyone’s Self-Directed IRA. Also, neither you nor any disqualified persons may benefit from the property in any way. This includes staying there, even for one night. A disqualified person cannot stay on the property even if that person pays rent. You also cannot directly buy from or sell any property to a disqualified person nor employ them for any reason such as maintaining or managing the property. Neither you nor any disqualified person can perform any services on this real estate, even if you do it for free. This labor would be seen as benefitting the Self-Directed IRA through an in-kind transaction, so it is forbidden.

However, certain family members such as siblings, aunts, uncles, and cousins are not considered to be “disqualified persons.” Therefore, they can invest in, purchase, use, or work on the property held by your Self-Directed Real Estate IRA without any restrictions.

All income from the property or expenses to improve and maintain it must also be paid by the Self-Directed IRA, not from your personal funds. Legally, you never see any of this money, as it all remains within the Self-Directed IRA. Although you may not do any business with a disqualified person, your Self-Directed Real Estate IRA can “partner” with them when investing in it. The purpose of partnering is to increase the amount of capital which the Self-Directed IRA has access to. However, when partnering all funds must be kept separate from each partner when buying, selling or using the property in any way. This prohibition also extends to changing the percentage of ownership controlled by any investor, as that is considered a sale or purchase.

Although there are significant tax benefits from using a Self-Directed IRA, there are some taxes which do have to be paid. As they say, nothing is perfect. For example, you may have used financing for the investment in your Self-Directed Real Estate IRA. Such financing is permitted as long as the loans are non-recourse. This type of loan is secured by collateral, such as property. Should you default on the loan, the lender may seize the property, but cannot look to the borrower for any other compensation if the value of security is insufficient to pay the entire loan balance. This protects the rest of your Self-Directed IRA assets from being seized by the lender.

Although you are prohibited from personally benefitting from property held in your Self-Directed Real Estate IRA while you are still of age to deposit into the account, after you retire you can then use the real estate as a home or benefit from it in any way. Also, after you begin making withdrawals from your Self-Directed Real Estate IRA, you can take real estate as an “in kind” distribution instead of cash.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Or visit us online at

Self-Directed Real Estate IRA Update – Criminal Background Checks and the Law

If you are a Self-Directed Real Estate IRA investor, it is not just tax laws governing retirement accounts you must worry about. There is a whole set of landlord-tenant laws you need to be aware of as well – and they can vary by jurisdiction.

For example, most Real Estate IRA investors have taken for granted that they will be able to run criminal background checks on applicants and screen out people with criminal histories. After all, these tenants pose a potential risk to neighbors, roommates and even potentially to the landlord.

That is not universally the case. For example, the city of Seattle made it illegal last year for property owners to decline to rent to applicants because of a criminal history. They made it a crime for landlords to even run a criminal background check.

The law, which the City Council passed unanimously last August, prohibits landlords from refusing to lease housing to individuals on the basis of their criminal history, except where the tenant is on a sexual offenders’ registry for a conviction received as an adult, and the landlord is able to provide a legitimate business reason for the discrimination.

The law also prohibits landlords from even asking about prior criminal records or creating blanket policies against renting to those with criminal histories or instructing their property managers and agents to turn down their applications. Advertisements with discriminatory language are also prohibited. Fines range from $10,000 for a first offense up to $55,000 for repeat offenders

This month, a group of small landlords affiliated with the Rental Housing Association of Washington is filing suit against the City of Seattle, arguing that the Fair Chance Housing Ordinance is unconstitutional. The RHA represents the interests of Real Estate IRA investors and those who own rental real estate directly, outside of retirement accounts. The Pacific Legal Foundation is providing legal representation.

The argument is that the ordinance is a violation of landlord free speech and due process rights. The Association also claims that the City Council.

The City states that they believe the ordinance in question is not unconstitutional and will defend it in court.

Until the Association prevails in the suit, the ban on discriminating against convicted criminals remains in force.

It is not just a Seattle issue: In 2016, the U.S. Department Housing and Urban Development began sending warning shots against landlords: ““A policy or practice that denies housing to anyone with a prior arrest or any kind of criminal conviction cannot be justified,” wrote HUD general counsel Helen Kanovsky for the U.S. Department of Housing and Urban Development (HUD).

The current HUD Administration seems to be friendlier to landlords, small businesses and investors.

It is a good idea for Self-Directed IRA investors to stay in close touch with an experienced landlord-tenant law attorney licensed in all states in which you own rental properties. Do not get blindsided by a law or ordinance you did not know about. Understand the law at the federal, state and municipal levels. And maintain adequate landlord insurance to protect you against problems.

For more information on Self-Directed IRAs, call us today at 866-7500-IRA (472). Or visit us at and download our guide to Real Estate IRA investing.

Upstate CREIA – Strategies for Purchasing Rental Properties in Your Self-Directed IRA

Event Location:

Southern Fried Green Tomatoes

1175 Woods Crossing Rd

Greenville , SC

Date and Time:

Start Date: 07/22/2013 | Start Time: 11:30 AM
End Date: 07/22/2013 | Approx. End Time: 1:00 PM


Sean McKay, Senior Vice President of American IRA, will be presenting: Strategies for Purchasing Rental Properties in Your Self-Directed IRA

This new group will be lead by 3 REI-specific professional services providers, who are all vendors of UpstateCREIA and will feature monthly topics and a Q & A session.

NOTE:You will need to plan on purchasing lunch each time you attend. They provide the room free, (so long as everyone eats) (good food and very reasonably priced)

Professional Focus Group – Led by 3 REI-specific professional services providers, and will feature monthly topics and a Q & A session.


This event requires payment at the event.
UCREIA Member and Other ACTIVE REIA Members: Free
Non-Member: $10.00

Group leaders are;

-Kevin Brady, Closing Attorney
-Brandon Smith, CPA
-Sean McKay, Real Estate IRAs

The is typically on the 4th Monday of the month.

Self-Directed Real Estate IRA: Benefit from a Recovering Economy

Self-Directed Real Estate IRABefore the Great Recession, housing prices were hitting all-time highs and everything looked bright for the real estate market. It wasn’t until a few years ago that the asset bubble popped – things were going too far, too fast. Since then, prices have declined quite a bit in a widespread correction.

Having said that, a number of economic variables have changed in recent months and the U.S. economy has leveled out, even growing beyond what it once was in some respects. This has benefited many asset classes, which is why a self-directed real estate IRA is ideal at this point in time. Many experts claim that the best is yet to come, and investors are taking notice. Prices have started to climb again, so a number of investors are rushing into real estate and buying up good deals while they still can.

Real estate is a wonderful way to strengthen your IRA’s portfolio – real estate will always have value, and you can use it for a number of different purposes including rental income. The tax benefits that IRAs possess are also hard to compete with. Investing in a property in your IRA’s name means that neither you nor any persons disqualified by the IRS will be able to utilize it until you reach 59.5 years of age.

You can definitely profit from a self-directed real estate IRA in short order. For example, you can fix up a house and sell it at an increased price or put your property up for rental. While you won’t be able to access these returns until you reach retirement age, it’s definitely a fantastic way to build up your nest egg. The Wall Street Journal, dated Tuesday March 19, 2013, front page headline says 57% of workers are saving too little to retire; careful planning can ensure that you are not among those unprepared for retirement.

As always, check with your real estate professionals and perform all necessary due diligence before taking part in any transaction.

If you have any questions about opening a new IRA account, contact us at 1-866-7500-IRA(472) or If you’d like to add real estate to your existing portfolio, contact us at 1-866-7500-IRA(472) or


Jim on Google+

Flipping Houses in an IRA

Flipping Houses in an IRA

For the purposes of this article, flipping is defined as the purchase of property with the intent to sell at a profit shortly after making significant improvements. If you have particular expertise in buying and selling real estate, and you are looking for ways to expand your real estate investment practice in a tax-advantaged way, flipping real estate in an IRA is an excellent way to do so, and you’re in luck: IRS rules allow you to hold a wide variety of assets in an IRA – including real estate. This means that real estate investors can take advantage of all the tax benefits of using an IRA, SEP-IRA, SIMPLE IRA, or solo 401(k) plan. For now, we’ll talk primarily about IRAs.

Advantages of Real Estate Investing

The many advantages of real estate investing are well-known to market veterans. And the vast majority of these advantages apply to retirement accounts as well. Using a self-directed IRA to invest retirement assets in real estate, including property flipping, allows you to take advantage of these lucrative aspects of real estate investing.

Leverage. Real estate has intrinsic value that is well understood by lenders. It is therefore relatively easy to borrow money to leverage your real estate portfolio. While historic unleveraged capital growth in the real estate market are modest and in line with many other asset classes, the judicious use of leverage has historically put real estate in a class of its own, when looked at on a return on invested capital basis. The IRS allows you to borrow money within your IRA to leverage real estate purchases, as well as handle immediate cash flow needs. Any loans taken out by your IRA need to be non-recourse loans only. The lender can have no claim to any collateral outside the IRA, and you cannot sign a personal guarantee.

Diversification. Real estate has historically provided an important diversification benefit against more traditional retirement investing asset classes such as stocks, bonds and funds.

Inflation Protection. As the purchasing power of the dollar declines, real estate potentially provides an important hedge against the ravages of inflation. A given plot of land, for example, will still yield the same number of bushels of wheat or corn, regardless of whether the dollar collapses or not. And no matter what happens to inflation, people still need to live somewhere. Demand for housing transcends inflation and everything else in the market.

Potential for Growth. Unlike bond income, the income from real estate investments tends to grow over time. This, in turn, supports gradual appreciation in property prices, and leads to eventual capital appreciation. In some cases, economic development or expansion in an area can cause a rapid and substantial increase in property prices – leading to ‘flipping’ opportunities.

Control. When you invest your IRA assets in a mutual fund, for example, you give up control. You have no input as to what happens with your money, and no control over how the fund manager invests it. You won’t even know what they’re doing with it for weeks or months, when the fund publishes its portfolio. By electing to self-direct your retirement investments, and by investing in real estate, you maintain full control over the investment. You can take positive steps to help the property appreciate in value, such as making renovations and improvements that improve the expected selling price of the property.

Advantages of Using an IRA or Other Retirement Account

Your IRA generally allows you to defer taxes on ordinary income or on long or short-term capital gains – though there are certain exceptions, in some cases, for profits attributable to leverage. This means that you can collect an unlimited amount of rental income, tax-deferred, or tax-free, if you use a Roth IRA. Your IRA generally allows you to defer taxes on profits generated by the IRA–unless, of course, it’s a Roth, which is tax free—until you reach age 59½. If you use a Roth IRA, you never pay income or capital gains taxes. However, if you have profits attributed to leverage, that percentage of your profits will be subject to unrelated debt income tax (UDIT) because it is not IRA money.

Likewise, you can buy or sell an unlimited number of investment properties within your IRA, tax deferred. However, you should be aware of unrelated business income tax. If you are determined to be engaged in the business of “flipping properties” – that is, if the IRS determines you to be a dealer in real estate, you will be judged to be operating a business within your IRA, which may generate a UBIT liability. This is a question you should raise with your tax advisor. Qualified tax advice is a must. American IRA does not provide individual tax advice.

If you use a Roth account, rather than a traditional IRA, your income and capital gains can grow within the account tax free. True, you can also get a deferral on capital gains taxes using a 1031 exchange. But you can only do so as long as you are exchanging one real estate investment property for another, and only during a specific time period. By using an IRA, you can move in and out of real estate as often as you like, provided you keep the sales proceeds in the IRA itself. If a transfer is delayed for whatever reason, you don’t have to worry about incurring a current capital gains tax liability within an IRA like you do if you don’t execute a 1031 exchange by the deadline. This may help you be much more selective about the real estate trades you make.


There are some things to be aware of when using your IRA for any kind of real estate investing:

  • You cannot use the property for your own personal benefit.
  • You cannot lend to or borrow from your IRA, nor can your ascendants, descendants, their spouses or any entities they control.
  • You cannot do business directly with your IRA. For example, you cannot set up a construction company and have your IRA hire your company to work on the house. The same restriction applies to your ascendants, descendants, their spouses and any entities they control.
  • You cannot stay in properties your IRA owns, even overnight.
  • If you use leverage, the IRS may impose a tax, called “unrelated debt income tax,” on a portion of the IRA’s profits. In some cases, however, this tax does not apply to assets held in self-directed Solo 401(k) plans. Consult your tax advisor for more information on how this tax may affect you.
  • Any money your IRA borrows must be in the form of non-recourse debt. This means that the lender can hold no claim on any assets outside of the IRA whatsoever. The entirety of the loan must be either unsecured or secured by assets within the IRA. You cannot sign a personal guarantee in this debt.
  • Because there is no tax on current income to deduct against, you cannot take deductions for depreciation of rental properties held in a retirement account.
  • Be aware of the restrictions on contributing new money to retirement accounts. Any expenses your IRA incurs over and above the $5,000 annual contribution limit for IRAs ($6,000 if you are over age 50), for example, must be paid for with money in the IRA already, money rolled over from other retirement accounts, or borrowed. You cannot make a massive cash infusion from outside the IRA using a traditional or Roth IRA account. However, you can take advantage of the higher contribution limits of SEP IRAs or Solo 401(k)s to intervene during a cash crunch, if you hold your property within one of these plans. SEP IRA contribution limits can be as high as $49,000 per year – many times that of an IRA.

Where We Come In

American IRA is a third-party administrator with particular expertise in self-directed retirement accounts, including real estate IRAs, 401(k)s, SEP IRAS and SIMPLE IRAs. Although not IRA products, you can also self-direct Coverdells and health savings accounts (HSAs) as well. This is a very specialized area of investment, and not every broker or other advisor has the skills to navigate the various rules and regulations that apply to self-directed retirement accounts. It’s important to partner with a firm that has skills and experience specific to self-direction and real estate within an IRA or other retirement account.

For more information, or to simply explore your options, call American IRA today at 1-866-7500-IRA (472). We look forward to working with you.