Self-Directed Real Estate IRA Glossary

Basic Self-Directed Real Estate IRA Terms You Need to Know

Beneficiary. The individual named to receive the IRA assets and the IRA itself upon the IRA owner’s death. This has important tax and probate advantages. It is important to keep the beneficiary listed by name on your Self-Directed IRA, and keep it updated as appropriate.

Capitalization rate. Also called “cap rate.” The rate of return of a property based on expected rental income. The formula is net operating income (NOI) divided by the current market value or the acquisition costs, expressed as a percentage.

Catch-up contribution. Additional money you are allowed to contribute to a retirement account once you turn age 50 or older. For Self-Directed IRAs, you can contribute $5,500 (if you meet the income requirements, and another $1,000 each year in catch up contributions once you turn 50.

Disqualified Persons. Persons and entities prohibited by law from transacting directly with your Self-Directed Real Estate IRA. These include your spouse, your children or grandchildren, your spouse’s grandchildren, your parents and grandparents, your spouse’s parents and grandparents, and any entities they control. It also includes anyone advising you in a fiduciary capacity on your Self-Directed Real Estate IRA.

Fair Market Value. The estimated value of assets if they were sold to another informed third party in an arms-length transaction. The fair market value of IRA assets must be reported to the IRS as of December 31st each year.

Inherited IRA. An IRA inherited by someone other than a spouse. Special tax rules apply.

Form 5498. An IRS form you will receive each year from your retirement account custodians or administrators detailing your contributions to your retirement accounts.

Hard money loan. A short-term loan based on the assets within the IRA, typically at higher interest rates.

Non-recourse. Mortgages in Self-Directed Real Estate IRAs must be on a non-recourse basis. The IRA account holder cannot sign a personal guarantee, and in the event of default, the lender must have no security to collect other than the specific property bought with the proceeds of the loan.

Probate. A judicial process used to account for a deceased individual’s assets, pay off his or her creditors and distribute the proceeds to heirs. If you name a beneficiary on your Self-Directed Real Estate IRA or 401(K), however, these assets bypass probate and pass directly to your beneficiary. If you had owned them in your own name, however, or fail to name a beneficiary, these assets are subject to probate.

Prohibited investment. The law restricts Self-Directed IRA owners from investing in certain kinds of assets, including life insurance, collectibles, antiques, art, gems and jewelry, alcoholic beverages and certain forms of precious metal coins and bullion of insufficient or inconsistent purity. Investing in these assets could cause the IRS to strip your Self-Directed IRA of its tax-advantaged status. You may face taxes and penalties if this occurs.

Rollover. A tax-free transfer from one tax-advantaged retirement account to another. Each taxpayer is entitled to one tax-free rollover transaction per year.

Roth IRA. An IRA account that features tax-free growth, tax free withdrawals on assets that have been in the account at least five years but is funded with after-tax contributions.

Contributions are not tax deductible. These accounts can be held in self-directed or conventional IRAs.

Self-Directed IRA. An IRA in which the owner retains direct control of the individual investment decisions within the account, to include the selection of the custodian or broker. Self-Directed IRAs provide more flexibility in choosing alternative asset classes and fee structures. They can be traditional or Roth IRAs.

Self-Directed SIMPLE IRA. Savings Incentive Match Plan for Employees.

Unrelated debt-financed income. A tax that may apply to any realized gains or income within a Self-Directed IRA or conventional IRA, Self-Directed SIMPLE IRA or Self-Directed SEP IRA plan attributable to borrowed money.

At American IRA, we believe that Self-Directed IRAs, including Self-Directed Real Estate IRAs, are the best vehicles for growing your retirement account. And we have the experience to help you with your transactions.

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

Self-Directed Real Estate IRAs and Insurance

Most of us understand the basics of homeowner’s insurance. But there are certain aspects of insurance that are especially important for Self-Directed Real Estate IRA investors to understand:

  • The Self-Directed IRA, not you, has to be the payor and beneficiary of all insurance policies covering the property. This is because of the prohibited transaction rules that govern Self-Directed IRAs and other kinds of retirement accounts: You cannot mingle your own personal funds with those of the IRA. This means that all premiums have to be paid with funds from within the Self-Directed IRA. Furthermore, if you have a claim, you do not want the payout to go to you, personally, either. This would potentially trigger a taxable distribution, complete with penalties, and could endanger the tax-favored status of your account altogether.
  • You should have American IRA, LLC, handle premium payments. Just as rent payments need to go to the Self-Directed IRA itself, and not you, personally, you should have your Self-Directed Real Estate IRA administrator (such as American IRA, LLC!) or custodian send in your premium payments. If you send premiums in from your personal checking account, and the IRS finds out, you could again endanger your account’s tax-advantaged status. If it is revoked, you could have a major tax hit and a lot of penalties if you are not yet age 59½.
  • If you have tenants, you need landlord insurance. If you are renting out the property, or plan to, you should have a landlord insurance policy. A regular HO-3 homeowner’s insurance policy will not cover you adequately. Landlords take on a lot of risks that homeowner’s insurance is not designed to cover. For example, if your tenant causes damage to a neighbor’s property or injures a neighbor, landlord insurance’s liability coverage is designed to cover it. If your tenant accidentally sets fire to the house and the fire spreads to a neighboring property, or if a tenant trips on a loose stairstep, landlord insurance is designed to cover it. Homeowner’s insurance will not. If you try to get by with just a homeowner’s insurance policy, and the insurance company finds out it’s a rental property, they will probably deny the claim altogether.
  • Flood, sinkhole and earthquake insurance require separate policies. Most properties should have flood insurance, and mortgage companies typically require it as a condition of the loan. If you live in areas prone to earthquakes and sinkholes – or as the insurance industry calls them – catastrophic earth movement events – these also require separate insurance policies or riders. They are not covered under off-the-shelf insurance policies. And again, it should be your Self-Directed IRA listed as a beneficiary, not you.
  • Vacant properties need special coverage. If your Self-Directed Real Estate IRA property is vacant for 60 days or more, or you believe it will be, contact your insurance agent and arrange for vacant property coverage. Vacant properties represent a higher risk to insurers than companies with a tenant in them, since flooding, mold and other events can go undetected for weeks. They also tend to attract vandals and vagrants, and vagrants are frequent drug users and may also engage in criminal activity that may damage the home (e.g., meth production) and generate liability for the Self-Directed IRA as the property owner.

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

Raleigh and Charlotte Hold Special Allure for Self-Directed Real Estate IRA Investors

The real estate markets in Raleigh and Charlotte, North Carolina remain among the the hottest in the country – and that is great news for local Self-Directed Real Estate IRA investors. In fact, North Carolina – including Raleigh and Charlotte in particular – is one of the best Self-Directed Real Estate IRA markets anywhere.

The North Carolina city took the #2 spot in this year’s “Hottest Housing Markets for 2018” report from Zillow, which looks at house price appreciation trends, rental prices, regional income growth, prospects for employment and low unemployment rates. Self-Directed Real Estate IRA investors have benefitted from a Raleigh economy that is firing on all cylinders, say analysts.

Charlotte, North Carolina, also fared very well, coming in as the fourth hottest market in the country, according to Zillow’s researchers.

All in all, Zillow ranked the country’s hottest markets as follows:

  1. San Jose, California
  2. Raleigh, North Carolina
  3. Seattle, Washington
  4. Charlotte, North Carolina
  5. San Francisco, California
  6. Austin, Texas
  7. Denver, Colorado
  8. Nashville, Tennessee
  9. Portland, Oregon
  10. Dallas, Texas

Continued growth in the technology industries fueled Raleigh’s housing market strength.

Yes, there is lots of technology in and around Silicon Valley, which explains San Francisco, San Jose and Seattle on that list. But Raleigh has something none of those markets can come even close to matching: Lots of room to run.


Because while people are actually fleeing those other cities as the cost of living continues to escalate, Raleigh can lay claim to being one of the most affordable cities in the country for renters. That’s an important metric for Self-Directed Real Estate IRA investors, who depend on being able to find qualified renters who can afford to pay their monthly rents on time and consistently. Evictions are frustrating, costly and damaging to both the tenant and the landlord. And in a mature market, values in San Francisco and San Jose have lots of room to fall.

The Raleigh market is much more affordable and sustainable for Self-Directed Real Estate IRA owners.

Currently, the median monthly rent payment in Raleigh is $1,441, which equates to just 22.9 percent of the median household income, ranking it the fourth most affordable market for renters in the country – again according to data from

And once again, Charlotte, North Carolina fares very well using this metric, as well: Zillow ranks Charlotte as the ninth most affordable market in the United States, with an average rent of $1,301, representing 24.7 percent of the median monthly income.

In contrast, the least affordable major metro markets for renters were:

  • Los Angeles, California, where the $2,759 median rent equals 47.6 percent of the median monthly income;
  • Miami-Fort Lauderdale, Florida, where the $1,867 median rent equals 42 percent of the median monthly income;
  • San Diego, California, where the $2,549 median monthly rent equals 40.8 percent of the median monthly income;
  • San Francisco, California, where the $3,425 median monthly rent equals 39.7 percent of the median monthly income, and;
  • New York, New York, where the $2,401 median monthly rent equals 38.3 percent of the median monthly income.

North Carolina also takes the edge for much lower state income taxes compared to California.

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

Self-Directed Real Estate IRAs Can Help Close the Retirement Savings Gap

Most Americans know they really should be saving and investing for retirement. But most Americans are also clueless about how much they realistically need to have saved up in order to provide for a secure and acceptably comfortable retirement income. Self-Directed IRAs are just part of the retirement picture that also includes conventional assets, Roth IRAs, pensions, 401(K)s, 403(b)s, Thrift Savings Accounts (for federal employees), annuities and private savings outside of retirement accounts.

The problem is pervasive: A new study from finds that more than 60 percent of Americans surveyed have no understanding of how much they need to save to accomplish their retirement goals. 69 percent of millennials between ages 18 and 67 do not know – which is excusable, considering their youth. But Baby Boomers didn’t fare much better: Fully 58 percent of Boomers are unable to calculate their required requirement savings or budgets. 56 percent of Generation Xers surveyed reported they didn’t know.

Other findings:

  • 8 percent of those responding indicated they never plan to retire – though disability and economic dislocation have a way of taking those decisions out of individuals’ hands.
  • 8 percent estimated they needed over $1 million to retire, and 15 percent estimated they would need to amass between $250,000 and $1 million.
  • 8 percent reported they believed they would need $250,000 or less to retire.
  • 61 percent reported they did not know. Which makes it impossible for them to make rational decisions about how much they need to save each week, month and year as their retirement dates march inexorably closer.

Self-Directed Real Estate IRAs can help

One way to close the gap: More Americans should consider Self-Directed IRAs – particularly Self-Directed Real Estate IRAs. The Self-Directed Real Estate IRA technique provides a number of powerful benefits that are not easily replicated using other types of asset classes:

  • Tax-deferred growth of Self-Directed IRAs, Self-Directed Solo 401(K)s, Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs
  • Tax-free growth of Self-Directed Roth IRAs and Roth 401(K)s
  • Protection from creditors in the event of bankruptcy
  • Consistent rental income that can be reinvested or used to support you and your family in retirement
  • Potential for increasing income over time as you are able to increase rents
  • Potential for capital appreciation
  • Easily obtainable leverage – lenders are generally more willing to lend on real estate than most other kinds of assets, and on better terms.

Few other types of investments provide this combination of benefits to the individual investor.

Fortunately, the Self-Directed IRA structure is flexible enough for investors to build quite significant real estate portfolios over time by leveraging the tax benefits of IRAs and other retirement accounts.

Real estate prices can be volatile, of course. But rental real estate tends to pay investors handsomely via rental incomes while they wait for prices to recover. You do not need to sell at a loss: You can continue to collect regular rental income from your Self-Directed Real Estate IRA investment property for years.

Self-Directed Real Estate IRA owners should be aware of unrelated debt-financed income tax: If you borrow money to purchase an investment property, part of your income and part of your capital gains on sale of a Self-Directed Real Estate IRA property will not be entirely tax-free. Any earnings and realized capital gains attributable to borrowed money, rather than your own savings and contributions, will generally be taxable as income, under UDIT rules. However, as you pay down the mortgage on the property, less and less of your income and capital gains will be taxable.

(Tip: Consider paying off any loans on Self-Directed Real Estate IRA properties, if possible, before selling them, to avoid having to pay UDIT on capital gains attributable to other peoples’ money.)

Another idea: Self-Directed Solo 401(K) accounts also support self-directed real estate investing. If you are self-employed or own your own business, you can establish your own 401(K) or Roth 401(K) and use it to purchase investment real estate directly.

However, Self-Directed IRAs and Self-Directed Solo 401(K)s are no panacea: In order to have the greatest chance of success, investors should have a clear idea of what their retirement income needs are, and what kind of savings it will take to amass an investment portfolio capable of generating the income required over many years of retirement.

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

Property Taxes and Self-Directed Real Estate IRAs

Nothing is certain, it is said, but death and taxes. And so, it goes that even with the tremendous tax advantages of Self-Directed Real Estate IRAs, they are not totally free of taxation, either. In addition to unrelated debt-financed income tax (UDIT), which we have written about here, Self-Directed Real Estate IRAs must also pay property taxes, which vary by county.

Since property taxes come directly out of Self-Directed Real Estate IRA profits, it is critical to take these costs into consideration when buying real estate properties and setting rent rates.

The state with the highest property tax burden, on average, is New Jersey, with an average property tax burden of $8,690 as of the end of 2017. That is up 1.6 percent compared to the previous year. In New Jersey, a home assessed at $300,000 would carry an average property tax of $7,200.

In contrast, the state with the lowest property taxes nationwide is Hawaii, where a home assessed at $300,000 would carry an $810 tax burden.

Do not worry: Hawaii will make up for it in its income taxes and generally high cost of living. And good luck finding a house in Hawaii priced at $300,000! (The median home price in Hawaii is well over $530,000).

According to recent reporting from the New York Times, the five states with the highest property tax burden are:

1.) New Jersey            2.40%

2.) Illinois                   2.32%

3.) New Hampshire     2.19%

4.) Connecticut           2.02%

5.) Wisconsin              1.95%

Looking for the lowest average property tax burdens? Here they are:

1.)  Hawaii 27%

2.)  Alabama 43%

3.)  Louisiana 51%

4.)  Delaware 55%

5.)  District of Columbia 56%

Nationwide, the average American household that pays property taxes spends $2,197 on property taxes each year.

A few special cases: Texas does not have a state income tax, but property taxes are among the highest in the country, with an effective average real estate tax rate of 1.86%.

Note that while income tax is charged at a higher rate, it is only on the income. The property tax is on the entire assessed value of the property every year. However, with a median home value of $142,700, and some of the hottest markets in the country, Texas remains a popular spot for Self-Directed Real Estate IRA investors.

Fortunately for many of our clients, none of the 15 most expensive property tax states are in the southeast. It is the northern homeowners that are taking the biggest beatings. North Carolina, where we have our offices, ranks among the 15 states with the lowest property tax burdens. North Carolina residents pay an average effective property tax rate of 0.88 percent.

Durham County has the highest property tax rate in the state, at 1.22%, while Watauga County has the lowest, at 0.42%. North Carolina Self-Directed Real Estate IRA investors can find a county-by county breakdown of property tax rates in North Carolina here.

But while high property tax rates are a burden for Self-Directed Real Estate IRA investors, they may represent an opportunity for those interested in investing in tax liens and certificates: Bigger property tax bills mean more people falling behind on property taxes, creating a potentially lucrative opportunity for investors to use their Self-Directed IRAs to pay the delinquent property taxes on the owners’ behalf and get a lien on the home – all the while earning an attractive interest rate on the loan.

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

Self-Directed Real Estate IRA Basics: Investing in Raw Land and Timber

Most Self-Directed Real Estate IRA investing is done using basic residential properties as the investment vehicle: Single family 2- and 3-bedroom homes, condominiums, small apartment buildings, duplexes and quads. But there is nothing limiting you to these straight-ahead investments. Self-Directed Real Estate IRAs come in all kinds of varieties. If you find a compelling value in farmland, ranch properties, timber and other kinds of real estate investing, you can absolutely pursue it while still combining the advantages of real estate investing with the power of a Self-Directed IRA.

Advantages of Self-Directed Real Estate IRAs

Land is a unique investment with a number of key advantages:

  • Even in down markets, Self-Directed Real Estate IRA investments almost never go to zero.
  • Usually generates regular income.
  • Land produces food, timber, coal and oil – all of which have economic utility that is likely to last as long as civilization lasts.
  • You can build rental real estate on a piece of farm or timberland or rent space to advertisers and cell phone tower developers to further boost income. Other potential sources of revenue streams include renting barn and other storage space, natural gas rights, solar panel space rental, wind power generation, grain storage/siloing, summer and October hay rides for the community and special events.
  • Rental income and crop/livestock yields from a Self-Directed Roth IRA are tax-free.
  • Land/real estate is a historic hedge against stock market volatility.
  • Potentially increasing rents and yields amount to significant inflation protection.
  • With good tenants, farmland and timber land requires less maintenance and intervention from the landlord than residential and even commercial real estate. You do not have to worry about leaky roofs and faucets and 3 AM calls because of a stopped toilet.
  • Farmers generally pay rent twice per year – once in the spring and once in the fall. Which means fewer collection headaches for you.
  • Property management expenses are lower. This means your Self-Directed IRA can keep more of the rental income that might otherwise go to a property manager.
  • Farmland and timber land is a proven source of passive income – especially when any mortgages are paid off.

Successful land investors are aware of the risks: To do well in Self-Directed Real Estate IRA investing in farm, ranch and timberland, you should have a solid understanding of the industry and the communities in which you are investing.

Be careful to do a thorough title search to ensure you are not buying a property still encumbered with liens.

You should also be in a position to tie up money in the land for a long time. Transaction costs on land can be high, and land is notoriously illiquid. However, this illiquidity is part of the reason it is so potentially profitable – you will not normally need to pay a liquidity premium in the form of lower ROI for the privilege of quick access to your money. This is why Self-Directed Real Estate IRAs and other similar tax advantaged retirement accounts are ideal vehicles for this kind of investing: Time horizons for many Self-Directed Real Estate IRA investors is measured in decades, not months.

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

Self-Directed Real Estate IRA Update: North Carolina Multi-Family Market Remains Strong

It has been a nice run for Self-Directed Real Estate IRA owners focused on the multi-family residential market, but we are starting to see some signs of a slowdown in investment activity.

New data from CBRE and Real Capital Analyst indicate that total multi-family investment activity slipped by 6.9 percent year-over-year, as of the close of Q2 2018. Capitalization rates, defined as the annual net operating income of the property divided by the property value, edged down to 5.5 percent, largely due to a declining investor interest in so-called ‘garden-style’ apartment buildings.

However, the high-rise market continues to attract strong investment activity, with 12.4 billion in sales marking an increase of 12.2 percent on a year-over-year basis.

A disproportionate share of investment dollars is flowing to the already highly-appreciated markets in Los Angeles and New York, with the hot Dallas market coming in third, well behind the other two metros. But that may well leave opportunities in the underserved Southeast, including here in North Carolina, where economic growth, employment prospects and housing demand remain strong, and where rental yields are still attractive to Self-Directed Real Estate IRA investors interested in multi-family housing.

Data from the Apartment Loan Store, a lender that specializes in the multi-family market, indicates that cap rates in and around Charlotte, North Carolina, are in line with national averages, though they vary by type of property:

New Luxury Metro                 4.62%

Class A                                                     5.14%

Class B                                                     5.67%

Class C                                                     6.45%

Value-added Acquisitions     6.34%

The average multi-family rent in Charlotte has increased 2 percent over the past year, also according to the Department Loan Store, though the trend has been towards flattening, overall.

Baby boomers who have recently sold their homes have been migrating to the rental market, offsetting Millennials who are increasingly joining the ranks of homeowners.

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

Buying Florida Properties in your Self-Directed Real Estate IRA

A recent article in the Sarasota Post features the basics of investing in Florida properties using your Self-Directed Real Estate IRA. Of course, the principles are the same everywhere: The laws governing IRAs, including Self-Directed Real Estate IRAs and the broader category of Self-Directed IRAs, are federal. They are the same in every state. But there are a few considerations that make Florida unique.

Booms and Busts

Florida has been attracting real estate speculators for decades – and is famous for big Florida land booms followed by devastating busts. Many have gotten wealthy from Florida real estate investing, and if you time things well and get in while one of the great Florida land booms has some room to run, you can do extremely well indeed.

On the other hand, many have bought into Florida property at the top of the market and been devastated by one of the big real estate crashes that seem to happen in Florida from time to time.

Those who have been investing in real estate for a while will easily recall that Miami, Fort Lauderdale and Palm Beach real estate investors were all seriously hurt by the 2008 market crash. But they have also done very well in the recovery.

Be Patient

So, Florida is a market that is best for Self-Directed Real Estate IRA investors who plan to buy and hold, or who have a number of years before they expect to need to cash out. Meanwhile, the great thing about real estate is that thanks to the generous and increasing rental income yields available on real estate, Self-Directed Real Estate IRA owners can get paid very handsomely to wait.

No State Income Taxes

Florida is an ideal home for Self-Directed Real Estate IRA investors because it is one of a handful of states that do not have a state income tax. This means that rental income from your Self-Directed Real Estate IRA is only taxed at the Federal level, and if you own the property in a Roth IRA, it is not taxed at the federal level, either.

The lack of state income tax goes a long way to helping make a Self-Directed Real Estate IRA a compelling value proposition, and it makes Florida a great destination for retirees who expect to rely on taxable income from an IRA, 401(K), or real estate portfolio.

Self-Directed Real Estate IRA financing

Because Florida real estate prices so historically volatile, lenders may be more careful about lending to Florida Self-Directed Real Estate IRA investors. For example, in most markets nationwide, it is pretty easy to find financing from a Self-Directed Real Estate IRA lending company for about 65 percent of the value of the property securing the loan. However, some of these Self-Directed Real Estate IRA lenders will not lend on Florida properties. The ones that do may require a 50 percent down payment rather than the 35 percent standard elsewhere in the country.

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

Real Estate Self-Directed IRA Investing in Hawaii

Hawaii’s mild year-round climate and unparalleled natural beauty make it a potentially attractive place for Real Estate Self-Directed IRA investing. Land is scarce and in high demand – and the demand is increasing as Hawaii’s population continues to grow. This creates a natural support for real estate prices. Even as the nationwide market cools off, Hawaiian luxury real estate properties continued impressive double-digit gains in 2017: 33 percent on Maui, 25 percent for Kauai and 24.8 percent for the ‘big island’ of Hawaii.

But there are some very important factors specific to Hawaii that any Real Estate Self-Directed IRA investor should understand before getting involved.

Leasehold vs. ‘fee-simple’ land

Land and politics in Hawaii are closely intermixed. When the Hawaiian monarchy was overthrown in 1898, hundreds of thousands of acres of developable land belonging to the Hawaiian Royal Family were eventually transferred to the Bishop estate and are managed for the benefit of the Hawaiian people.

Many homes in Hawaii are on Bishop Estate land, and Real Estate Self-Directed IRA homeowners do not retain permanent title to the land, but instead enter long-term leases, or take over leases from existing homeowners. Leases are typically decades long, though lease rents are usually reevaluated periodically – every 10 to 15 years. Eventually the lease expires, and the land undergoes ‘reversion’ back to the control of the landlord – at which time the lease is renegotiated, or the landlord decides to go with another tenant.

The term ‘fee simple,’ on the other hand, indicates that ownership of the land is permanent – the Real Estate Self-Directed IRA investor is purchasing the land outright, along with the house.

Real Estate Self-Directed IRA investors should be keenly aware of whether the property they are buying is leasehold or fee simple land.

If you see a listing for ‘fee available’ property, this indicates that the landlord is willing to sell the land outright – at the right price.

Fee simple land is typically more expensive than an equivalent plot of leasehold ground. The remaining number of years on the lease may also be an important factor in obtaining financing or finding a buyer. Financing is nearly impossible to obtain as the remaining lease term gets under 10 years, so the Real Estate Self-Directed IRA buyer may have to find a cash buyer.

Hawaii also has a state income tax, so if you become a Hawaii resident, or you are generating rental income from a property in Hawaii, be prepared to take an income tax haircut of up to 8.25 percent on income over $48,000 per year (single filers) or $96,000 (for married couples filing jointly.)

Property taxes can also be significant – $4.50 per $1,000 of appraised value in Honolulu up to $ million in value, and $9.00 per $1,000 of appraised value in excess of $1 million. So, property taxes on residential real estate are more significant for higher-priced homes. And with median home prices on the island of Oahu now nearing $800,000, it is very easy to find yourself with a home value of more than $1 million, and an increased tax liability, which you will need to pay from within your Real Estate Self-Directed IRA until you are at least age 59½ years old

Real Estate Self-Directed IRA investors should be very aware that they will need to adjust for property taxes and state income tax on income from Real Estate Self-Directed IRA investment properties.

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

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