The Real Estate Investor’s Resource

Turning Intentions into Action

Self-Directed IRAs

This is a recent newsletter article from my friend, Gus Nassif, at Insurian Services.   Self -Directed IRAs are a great tool for real estate investors.   


Self-Directed IRAs (SDIRA) allow you to diversify beyond the so called “traditional assets,” such as CDs, annuities, stocks, bonds, options and
funds, and in such “non-traditional assets,” as real estate (land, residential & commercial), a business, notes, boats, planes and everything
else deemed “asset eligible” by the IRS. Diversifying in the assets you like, best understand, and in the ones best positioned for growth is
what the Self-Directed IRA is all about; self-control! Without a self-directed IRA, you’re restricted to traditional asset diversification only,
and that’s due to IRS plan guidelines, as well as, asset choice limitations by the custodian of the IRA you choose.

In summary, if you haven’t already diversified in a self-directed IRA, now may very well be the time to evaluate doing so!

Now, one thing to remember is that a Self-Directed IRA is a term and not exactly an investment platform. It still needs to be associated with
the IRA or solo 401k it has selected, and therefore must adhere to that platform’s IRS’ guidelines, as for example, maximum contribution. Once
set up, it’ll allow you to diversify in both “traditional” and “non-traditional” assets. The IRAs in question come in many different flavors, from
the individual type plans as a traditional IRA (and Solo 401k), a Roth IRA, a SEP IRA, an Annuity, to the Rollover IRA. Additionally, there are the
Coverdell Education Savings Account and the Health Savings Account (HSA) which technically can be converted to a retirement plan if gone
unused on education. 

On the otherhand, a group 401k like plan can be restricted by the plan sponsor and plan’s custodian as well, allowing diversification in only
pre-selected, and sometimes limited, mutual funds or group variable annuity sub-accounts. A group SIMPLE IRA, unlike group 401k, may give participants more flexibility. A group plan participant who is no longer employed, may transfer the full balance to a “rollover IRA” and diversify
the money in a self-directed IRA. However, if the participant is still employed, then only a portion of the balance can be transferred, and only
if the employer’s “plan document” did include the “Non-Hardship In-Service Withdrawal” provision.

Let’s use a real estate based self-directed IRA as an example to illustrate its mechanics:

1.) A custodian or administrator is selected to help set up the self-directed IRA. Custodians assist with all paperwork and transactions
     within the Self-Directed IRA. Custodians are fee-based.

2.) A cash flow positive real estate investment property is located; that’s only if you’re financing the purchase.

3.) Selecting a lender, only if you need financing, and applying for what is known as a “Non-Recourse Loan” comes next. This is a loan
     that does not hold you personally liable in case of default. Again, it’s the IRA that owns the property and not you the account holder.
     The lender has only recourse to the property held by the IRA. The lender loans the IRA a portion of the value of the property, usually
     a maximum of 70% of the purchase price, with the remaining 30% coming through the IRA itself in the form of a down payment.
     Ratios are lender-dependent.

4.) The property is purchased, then placed within the self-directed IRA and held in its name. Again, the IRA and not you owns the property!
      It’s an “arms’ length” transaction, in that you can’t personally profit from it, but your IRA does until you’re 59 and 1/2 or older, where
      you can begin taking distributions taxed as ordinary income, or for that matter, no taxation if the money was held in a Roth.

5.) You may be able to set up an IRA in an LLC for reasons of both asset protection and self-management. The latter would give you, the
     IRA account holder, “checkbook control” in becoming the IRA LLC Manager. In this capacity, you simply write a check for all of the
     transactions. Additionally, this type of control allows you to diversify in other assets as well, besides real estate. In this type of
     scenario, you no longer have to direct the custodian to handle those transactions for you, doing so yourself. Now, do keep in mind,
     that whenever an IRA uses any type of financing, as is the case here with the non-recourse loan, an “Unrelated Business Income Tax
     (UBIT)” on the investment would have to be paid. There are both legal and tax aspects to this type of transaction requiring you to
     consult with both an attorney and a CPA respectively.

Gus Nassif



April 14, 2009 Posted by | IRA, Real Estate Investing, real estate investors, Self-Directed IRAs, Uncategorized | Leave a comment

How to Deal with Your Escrow Shortage & Increase Your Cash Flow

Property taxes and insurance are increasing every year.  If your mortgage requires an escrow account to cover taxes and insurance, this will increase the payment.  Often it results not only in an increase in mortgage payments but an additional payment due for a shortage in the current mortgage escrow account.   This quickly decreases cash flow; however, there is a way to get some relief! 

Typically, mortgage companies will allow two options when there is an escrow shortage.  One option is to pay the escrow shortage in full with one payment.  The other option is an increase in the mortgage payment spreading the escrow shortage over a twelve month period.  The mortgage statement will come with a notice to either pay the shortage payment in full or start paying your new (increased) payment amount. 

 It is not unusual for real estate investors to receive several of these increases each year on multiple properties.  Even if you only own one property, your primary residence, the additional monthly expense is no fun.   However, for real estate investors owning multiple properties, these payment increases can really hurt cash flow.  Even if the increase is only $20 – $40 per property, it adds up fast when you multiply the increase by 5 or 10 properties or more.  

Most mortgage companies are willing to spread the escrow shortage over a longer period than twelve months – if you request it.   Some mortgage companies will spread the escrow shortage over a 36 month period, which can really lighten the burden and increase your cash flow if you have multiple properties.  All you have to do is send in a written request asking them to spread your escrow shortage over a longer period of time.  It is helpful to explain that the increase in payments is creating a hardship.  After all, it is always hard when your cash flow goes down, right?  You may want to call the escrow department ahead of time and ask how long they are willing to spread out the escrow shortage; and then make your request for the length of time you want the payments spread out based on the information they give you. 

February 26, 2009 Posted by | mortgages, real estate investors | , , , | Leave a comment

Property Taxes too High? Here’s how to appeal…

Property Taxes Too High?

Property Tax Assessment Appeals to the Rescue

Are you watching your property taxes go up while your property value goes down?  Somehow it seems that even though property values are dropping, the taxes on property are still going up.  If this is the case for you, then exercise your right to the appeals process; it’s a fairly simple process.

First, you want to compare the tax assessed value of your property to the fair market real estate value.  Carefully check your property tax bill for the tax assessed value.  Then find the fair market value for your property by looking at recent comparable sales.  Real estate agents and websites such as are good for performing a real estate fair market value analysis.

Let’s say that your property is 3 bedrooms and 2 bathrooms and is assessed at $155,000.00.  You want to look for recent sales in your area of other 3 bedroom/2 bath properties.   An example of the comparables sales in your area might be:

3/2   $138K

3/2   $140K

3/2   $157K

3/2   $165K

How would you make sense of these numbers?  If you just took the average of the numbers it would equal $150K.  

So, what do you do now?  Further define the differences in your property and the other comparable sales.  One way to do this is to use data from a real estate agent and website like   Another way is to simply drive by the address of each comparable property (this shouldn’t take much time since they are right in your neighborhood).   When you view the comparable properties, look to see how similar or different they are from your property.   You might find that the properties selling for the higher end prices of $157K and $165K are brick, while your home and those sold at $138K and $140K have siding.  Or you might find that the more expensive properties are larger than yours or have other differences that would make them worth more.  Whatever the situation, it is a good idea to take a picture while you are there to show the differences.

If you’ve found some substantial differences, it’s time to submit your real estate tax appeal.  There is a deadline for the appeals process so pay attention to the deadline dates on your tax bill.  Simply write a letter including your parcel identification number explaining why you are appealing the tax assessed value.  Include your comparable sales documentation, pictures and other documentation. 

You will receive one of two responses to your appeal letter.   Your tax assessed value may be adjusted based on your appeal letter.   However, you won’t always win the real estate tax appeal process that easily; your response letter may be a notice that you are required to go before the board of equalization to further dispute the tax assessed value.  At this point, you have to decide if it is worth your time based on the potential savings.

Don’t forget that the tax assessed value not only affects your bottom line, but if you get ready to sell your house, the buyer will have to consider the tax bill as part of their expense.  The tax amount on the property will impact their monthly mortgage payment, which impacts the amount they can pay for a house.  The simple fact that you have appealed your tax value and that it is in line with the fair market real estate value for your property can save you money now and be a help when you are ready sell. 

To learn more about real estate fair market value analysis, visit .

March 19, 2008 Posted by | Real Estate, Real Estate Investing, real estate investors | , | Leave a comment

IRS & Real Estate Investors – Passive Loss

The IRS is cracking down on real estate professionals.
It’s questioning loss deductions. Real estate pros are exempt
from the passive-loss rules if they spend over half their working hours
AND at least 750 hours per year materially involved in real estate.
IRS agents are checking returns of people claiming to be real estate pros,
such as builders, landlords, managers and brokers. It wants to make sure
that the time tests are met. Thousands of tax returns have been pulled.
For more information, go to….

Shared by ….

Roger T. Herring

Managing Member

Investor’s Accounting, LLC


March 27, 2007 Posted by | Real Estate Investing, real estate investors | Leave a comment