Land Investing through a Self-Directed IRA?

  • Mod LIM

    I hear ya, Paul B. I'm in the same boat and don't have any personal experience with this yet, either, but I did see this on the website for the company that Bill Walker mentioned above, IRA Financial Group:

    If they do a reasonable amount of hand-holding, especially with first-timers, then I think this will probably be the direction I'll go, unless others have any really positive experiences with a lower-cost provider that offers similar "checkbook controlled" structure. 

    I just got a property under contract this morning, with a closing not-later-than date in January listed in the PSA, and it will hopefully be a 300% to 400% ROI deal so I'd really like to get that in a Roth.

    Edit: The picture doesn't seem to be coming through with my post, so if you're curious, check out the page Bill linked to above.  Towards the bottom it says:

    • Get our annual compliance service, included the first year and just $199 thereafter
    • We handle all IRS reporting and administration

  • I have two checkbook SDIRA's: one with Entrust and one with Horizon.  Entrust may not be doing checkbook LLC's anymore, and Horizon is comparatively in the dark ages, when it comes to its portal and support.  In my experience, the SDIRA custodians know the legal and tax landmines and will stay clear of those issues; they won't answer the hard questions.  When it comes to land flipping, and  Seth's post may have touched on this, you want to avoid being in the "trade or business" of flipping land.  Owning real estate is allowed, and you can buy and sell land as an investor, but you can't be a land flipper, who routinely and regularly sells land.  There is not much guidance on this issue from the IRS, but if you are deemed to be in the "trade or business" of flipping land, the gains are subject to UBIT (taxes).  You also need to steer clear of providing services for your SDIRA and the prohibited transactions.

  • I do this as well.  Yes, I do recommend this strategy as an option.  I kept looking at the returns in my land business vs. my returns in my IRA and it as a no-brainer.  So I moved a small amount to try it and so far I'm pleased.  But only do this if you are and experienced, full-time investor.  I wouldn't recommend this for a rookie. You need to be an experienced land investor and also understand the tax risk you are facing if you don't follow the  rules.  

    I also use IRA Financial Group.  They seemed straight forward and I don't need a lot of hand holding.  Been with them for over a year, but have only done 1 transaction as I'm being careful.  Would I recommend then?  meh.  They seemed to be less expensive than the other vendors I interviewed.  But they are quick to ask for their next payment and slow to respond and provide service.  They take a mass market, cookie-cutter approach.  As an example, I have some transactional questions right now.  I requested to speak with someone.  That has taken 2 weeks, and I'm now on my 4th person because the first 3 either wouldn't respond or couldn't answer my questions.  But I think I finally have the right one to answer my questions and we expect to speak soon.  

  • David Ludwig I setup a self directed IRA with Quest.   There was no application fee, and yearly fees weren't too bad.   I am keeping my funds in my IRA until its time to rollover.   I am also considering the checkbook LLC via    I utilize their tax attorney consultation services, and looking at their options for more flexibility.

  • Mod LIM

    In case anyone else is looking into options for this, as well, I wanted to provide an update on what I'm seeing. I'm currently leaning towards setting up a self-directed Solo 401k plan. From what I'm reading, it sounds like it has the direct control advantages of a checkbook IRA (no relying upon, and paying, a Custodian to make every transaction like you do with the Custodian self-directed IRA), without the on-going costs of having to set up a dedicated LLC like you do with a checkbook IRA. Plus, the annual max. contribution limits are higher for a 401k than an IRA. 

    To go this route, you need to have some type of self-employment, and my wife and I already have an on-going side-hustle business, not related to land investing.  In fact, we've already established a traditional Solo 401k with Fidelity under that business, so I think the key questions that I need to get answered by a professional at this point are whether we can have two separate 401k's through the same business (and the same participant), and if so, how our annual contribution caps might be limited (hopefully not) by the business's amount of profit, which I know is an issue for maximizing tax-deferred (traditional) 401k contributions, but I'm hoping maybe doesn't affect Roth contributions(?).  We'll see.

  • Thank you all for the insight!  

  • I just wrote a huge blog post about my experiences using a Solo 401(k) in my land business and some of the things you need to look out for.

  • Paul B The SDIRA files an informational return, form 5498, and your custodian should handle that for you. You report the fair market value and any contributions or withdrawals you've made. I'm still unclear on exactly how you value the real estate in your account at the end of the year. Is it basis, or do you need an appraisal? I've heard different things.Other than that, the account does not have to file a tax return.

  • Mod LIM

    That was a great blog post, Bill Walker!

    I saw that you touched on the 401k loan feature. Have you taken advantage of that yourself?  I think that it sounds good, but I'm also wondering about some of the details.  I know the conventional wisdom (among non-real estate investors) is that loans from, and paid back to, a Traditional 401k account can be a bad deal because while you are paying interest to yourself rather than a bank (which is good), you're also repaying the loan with after-tax dollars into a tax-deferred account, which basically creates double-taxation on your loan repayment (principal plus interest).  So I'm wondering if you can direct your loan repayments specifically into the Roth portion of a Solo 401k, to avoid that double-taxation.  I'm in the process of setting up my Solo 401k with IRA Financial now, and their rep said that you can put your after-tax loan repayment into Roth, but I'm not sure if she really knew what I was asking, or why it matters.

    I saw that they also allow you to specify (when you're creating your plan) how you want your loan terms to work; which is awesome, but I guess I'd probably rather have either a 0% loan interest or a very high interest rate (paid to myself), depending on the answer to the point I raised above.  Until I figure that out for sure, I just opted for Prime + 0%.

    Very cool stuff, though.

  • David Ludwig

    I’m in the process of taking a loan right now. It’s a super simple process. They gave me a form to fill out and all I have to do is sign it, file it away, and write myself a check. From what I understand, by law you have to charge yourself some interest. I think it has to be at least Prime and no higher than your state’s maximum interest. I plan to charge myself Prime.

    You can set up both a traditional and Roth in the same 401(k). I don't have a Roth component. When I talked to IRA Financial, they said you could hold both in the same checking account or set up separate bank accounts. If you keep it all in one account, you should keep very good records. This is all conjecture, but I think if you have both accounts in the same checking account, you might have to treat it like a “fund”. Investments would be allocated between the “investors”, i.e. your two accounts. That would probably apply to the loan too. When you pay yourself back your payment is allocated between the accounts, at a ratio of the account values at the time you made the loan. I’m just guessing about this though. I have no idea. I imagine that if you had two separate checking accounts, you could just loan the money out of the Roth checking account and pay it back to the same account?

  • Mod LIM

    Thanks Bill Walker, that's a great idea about maintaining separate bank accounts for Roth vs. Traditional balance.  All these things that I haven't had to think about during years of being only a Participant in other employers' 401k plans.

  • Banned

    Great insights, thanks, guys.

  • Hi guys,

    I just started following this thread, and wanted to say thanks to all of you for the great info! I'm thinking of shifting IRA funds into something more productive, but want to avoid all the land mines. Anyone have an opinion of Anderson Advisors or Damien Lupo?


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