Real Estate as an Investment in Your Self-Directed IRA
Real Estate as an Investment in Your Self-Directed IRA

As a Real Estate Professional I am obligated to stay informed and consult with my clients regardng smart solutions for Home Ownership as well as Real Estate Investing.  In this case I wish to advise you regarding investment options.  I have done a thorough investigation and found a Trust that offers one of the best programs available in todays market.  As a result, I am also an accountholder with them.  I learned a lot both through the actual process of securing my investment property as well as attending  their training program.  I would be pleased for the opportunity to assist you in your process of leveraging your own IRA for a more lucrative investment result. The following information will provide you with an overview and answer initial questions that you may have about the program.  lease do not hesitate to contact me to answer further questions or with your interests.  Maurice Saylor 703-926-3260 or


Your self-directed IRA or Qualified Plan gives you the flexibility to invest in real estate whether you wish to buy raw land, commercial buildings, condos, residential property, rental property, or vacant lots. In considering whether to invest in real estate, the following are some questions that will help you understand the important aspects one should know before purchasing real estate through with your "Self-Directed IRA" account.



How do I acquire real estate within my Self Directed Trust account?


Real estate can be purchased directly by your account, the funds can be transferred from an existing IRA or rolled over from a qualified plan.  It may also be acquired as a result of a foreclosure on a mortgage or deed of trust held within your Trust account.


Important... a closing date should only be set once your account has sufficient funds to make the purchase.  Furthermore I will provide you with a comprehensive Checklist of the items that must be completed prior to closing.




Can my Trust account invest in real estate through a Limited Partnership or Limited Liability Company?

 Yes. If real estate will be acquired through a corporate entity such as an LP or LLC and the Trust account will hold an equity interest in the entity, provide the items shown on  Trust's *(Processing Checklist for Private Equity Investments,) . (If the Trust account will be originating a loan which will be secured by a mortgage or deed of trust, provide the items shown on Trust's *(Processing Checklist for Private Debt Investments.)


In what name is title held for property held in an IRA or Qualified Plan?

Since your IRA or Qualified Plan is buying the property rather than you as an individual, the title must be held in the name of  the "Trust Company, Custodian FBO Accountholder Name, IRA #________

It is very important to have the contract/purchase agreement, title commitment/insurance, deed, liability insurance, etc. titled accordingly.


May I sell property that I currently own to my Sterling Trust account?

No. Property that you or a disqualified person has ever owned is not eligible to be purchased by your Sterling Trust account since this would be considered a prohibited transaction under Internal Revenue Code §4975.


What is a prohibited transaction?

In general, Internal Revenue Code Section 4975 defines a prohibited transaction as a transaction between a plan (your account) and a disqualified person. Generally, "disqualified persons" are defined to be the accountholder, other fiduciaries, certain family members (including lineal descendents and spouses of lineal descendents), and businesses under the accountholder's (or disqualified person's) control. In essence, the prohibited transaction rules prohibit an IRA or Qualified Plan from acquiring a piece of property which will be purchased from or used personally by the accountholder or other disqualified persons.


Can I use the property held within my Trust account?

Neither you nor any other disqualified person can have any personal use or benefit of the property while it is held in your retirement account. The property must be purchased for investment purposes only.


If I decide I want to begin using the property in my account, how do I take possession of the property?

You must withdraw the property from your account as an in-kind distribution (at the current market value) and pay any taxes and/or possible penalties if you are under age 59½. You will need to complete and sign the Trust's Distribution Request Form and send to Trust Holder, along with a deed prepared for Trust's signature which conveys the title of the property from your Trust account to you individually. An updated appraisal or broker's price opinion must also be provided if the current appraisal is more than three years old or if improvements have been made to the property (new construction, etc.).


How is earnest money handled?

The earnest money deposit must be funded by your Trust account.You cannot use personal money for the deposit and then ask to be reimbursed by your Trust account. You should send a copy of the contract or purchase agreement to the Trust, along with your written authorization for the Trust to send the specified amount of earnest money from your account to the title company or closing attorney. The contract or purchase agreement must list the buyer as "Trust Company, Custodian FBO Accountholder Name, IRA #___________". You (or other disqualified persons) cannot be listed as the buyer and then later assign the contract to your Trust account.


Can my Trust account borrow funds to finance a real estate purchase?

Yes, but only within an IRA. The Trust will hold debt-financed property in an IRA only with the use of a non-recourse promissory note issued by a lending institution or by the seller of the property. The non-recourse promissory note cannot be personally guaranteed, and the lending institution can only look to the property securing the note as collateral. Important: Debt-financed property may generate Unrelated Business Taxable Income (“UBTI”), and any taxes due must be paid by the Trust IRA account. For more information regarding UBTI, please consult your tax advisor.


Can my Trust account purchase a portion of a property in conjunction with other investors?

Yes, as long as the other owners are not disqualified persons. The deed must be registered as “Trust Company, Custodian FBO Accountholder Name, Account # _________ as to an undivided __% interest.”  The exact undivided interest must be provided.


What types of property can I purchase with my Trust account?

Vacant lots, raw land, and income producing property such as rental houses, condominiums, or commercial real estate.


What types of property will the Trust not hold?

The Trust will not permit investments of mobile homes, time shares, foreign real estate, or property purchased through an auction or tax sale. Permanently attached manufactured homes may be purchased only if the certificate of title has been surrendered. Please contact the taxing authority with regards to the process of surrendering the title.


May I purchase foreclosure property in my Trust account?

Only if the property has already been foreclosed upon, and you can provide all of the items on *Processing Checklist for Real Estate. However, the Trust will not process a foreclosure purchase directly through an auction or tax sale.


How are expenses and/or improvements handled for real estate held in my Trust account?

All earnest money deposits, insurance premiums, taxes, debt payments, or other expenses of the property (including any improvements) must be paid by the Trust account directly to an unrelated third party. Since the Trust requires your written authorization to pay invoices, it is important that you use your mailing address when setting up utilities, etc. so that bills are sent directly to you (or your property manager). Once you receive an invoice or tax notice, you should fax it to the Trust, along with the your written authorization for the Trust to pay the expense from your account. You may not personally pay for an expense on a credit card and remit the statement for payment. Sterling will not process payments to a credit card issuer.


Does rental income have to be deposited in my Trust account?

Yes, if the property is income producing property, all rental income must be paid to your Trust account. In addition, the Trust requires you to appoint an unrelated third party to act as the property manager for income producing property. The property management agreement will be provided by the property manager and should be signed by you and the property manager. Your third-party property manager may pay expenses from rents received as long as the Trust is provided with a monthly or quarterly report of income received and expenses paid. The report should accompany the property manager's deposit check (if any).


Does the Trust provide any management services with regards to the property?

No. You must appoint a Real Property Servicing Agent to handle all property servicing functions including monitoring the performance of the property manager. A servicing agent is required for all types of property. Please see the Real Property Servicing Agent Agreement in Trust's *Processing Checklist for Real Estate for the specific duties of the servicing agent.


Do I need to provide Sterling Trust with a property appraisal?

Yes. the Trust requires you to provide a property appraisal or broker's price opinion prior to Sterling processing a real estate purchase. In addition, an updated appraisal or broker's price opinion must be provided to the Trust every 3 years in order to update the value of the account. Important: If you choose to obtain a broker's price opinion, the broker must specify an exact opinion of value. Price ranges or approximations will not be accepted. In addition, the opinion must be prepared by a broker with a GRI, CRS, SIOR, or CCIM designation, and the broker must provide a copy of the certificate attesting to the appropriate designation along with his or her opinion.


Do I need to carry liability insurance on property held in my Trust account?

Liability insurance is required on property with improvements and is optional for vacant land. The insured on the policy must be “Trust Company, Custodian FBO Accountholder Name, Account # _________”. The property cannot be covered by a policy in your personal name.


What should I know about selling property held within my Sterling Trust account?

Once you have the property under contract and are ready to close, you will need to sign the closing documents as “Read and Approved by (your name)” and forward the documents to theTrust for signature. The Trust will then execute the closing documents and return the documents to the title company or closing attorney to complete the closing transaction. Upon closing, the title company or closing attorney must then remit the sale proceeds to your Trust account.


When I sell property held within my Trust account, can my Trust account finance the transaction?

Yes. Your Trust account may carry the note and deed of trust/mortgage if you wish to finance the sale.  The periodic principal and interest payments are to be deposited into your Trust account, and you may reinvest the cash however you choose. Please see the *Processing Checklist for Private Debt Investments for specific details on the note vesting and to obtain the forms you will need to complete this transaction.


Although a Trust self-directed IRA or Solo 401(k) opens more options for investing your retirement dollars, as with any investment, it's important to do your homework and understand what you're getting into. For more information about holding real estate in your IRA or Solo 401(k) call me.


*Contact for Checklist

Maurice Saylor