Further Adventures of a Self-Directed IRA

Buying real estate within a self-directed IRA

I’m going to do it: I’m going to dive in to a self-directed IRA — one I can use to invest in real estate. Truth be told, I’m still a little nervous about the process, but that’s probably because it’s new to me. (Kinda like eating a new food, or traveling to a new country where I don’t speak the language.) Except this time, it involves investing in real estate while making sure to comply with IRS rules and regulations regarding retirement accounts.

Researching self-directed IRA custodians

After reading up on what might and might not be allowed when buying real estate within an IRA, I moved on to researching custodians. (Here’s a list of quite a few, if you’re interested.) You see, you can’t just buy a piece of real estate and bam, designate it as being in an IRA.

Instead, you’ve got to have a company that will act as a caretaker for your IRA. From what I gather, this means taking care of reporting government-required information and (ideally) also helping to insure that no rules are broken.

The candidates

I checked out 5 different companies:

I started by poking around their web sites and estimating the annual fees I’m likely to be charged if I bought and sold one property a year and had 10 checks written. Since I really have no idea how many properties I’m likely to buy and sell each year, or how many checks will be involved with that that seemed like a “good enough” starting point. The fees were all…a lot more than I’m used to paying for an IRA, but within a couple hundred dollars of each other.

I then did general Google searches on the companies, searched specifically for reviews, and checked out the BBB info on them. In the end, I decided to go with uDirect, and am in the process of filling out the application there now. I could have checked out more places, but in the interest of avoiding analysis paralysis, I think 5 is plenty. (Yes, I’m a satisficer, not a maximizer.)

Overcoming fear

Investing can be scary, especially when you’re about to invest a bunch of money that you’ll need in retirement. I kept wondering, what if this doesn’t work out? What if it turns out I hate a hands-off approach to buying and selling property as much as I hated being a hands-off, long-distance landlord?

In the end, I decided that worst case? I’d lose some money; most likely the (hefty) fees paid to the custodian, but possibly also money related to the investment(s) itself. Naturally I don’t want to lose money, but all investments have some risk. And I can live with that. Besides, what if I love it and am successful? That’d be even better.

What’s left to do

Next up will be actually sending in my application, then starting the rollover process from my 401k account. Normally you can’t just rollover funds from a 401k at random, but there was a qualifying event that allows me to do so. After that, I’ll start house hunting and go from there. And that sounds exciting.