I haven't done a deal with my IRA yet, but I am trying to buy and rehab properties with fractional ownership between me and my IRA. This will let me make a little money personally, as well as increasing the money in my IRA. I set up my self-directed IRA with MidAtlantic. Based on what they told me, I am planning on the following:
When making offers, the buyer should be "[Your name] IRA and/or [Your name]". If your offer is accepted, you can pay the option fee and earnest money out of your pocket. You then send a "Buy direction" form to MidAtlantic indicating what you are buying and how you want to take title, e.g. Jesus Galaviz 20%, Jesus Galaviz IRA 80%. When I close on the property, 20% of the total price will be paid by me (factoring in the EM and option) and 80% will be paid from my IRA. MidAtlantic needs about 7 days to process the transaction and send the money, so plan accordingly.
IT IS VERY IMPORTANT that you pay all expenses proportionately according to your ownership because the penalties are harsh. Document everything. To simplify things, I am planning to use one general contractor to coordinate all activities. Before I buy the property, I will have his bid in hand and know what I will have to pay. He will invoice me for the first third to half of the total bid so he can buy the materials, pay his sub-contractors, and commence work. By doing this, he will have a chunk of money from me and my IRA to work with. As the job proceeds, he will invoice me for additional portions of the total amount. Remember that it will take about 7 days for him to get the money once you send your forms to the custodian, and REMEMBER TO NEVER pay the full amount of the rehab job until you have walked the property and are satisfied that the job is 100% finished...otherwise you'll be left with a partially-finished house.
When you're marketing the house for sale, make sure that you and your IRA pay all expenses proportionately. Keep documentation. When you sell, you and your IRA will receive the proportionate amount due.
There's a lot of ways to invest with your self-directed IRA. My plan is to beef up the balance with rehabs, then put excess capital to work by buying notes and selling with owner financing.
If anyone thinks I'm mistaken, wrong, or breaking a law, please let me know!
- Jesus Galaviz, comanche3000@live.com
