Self Directed IRA - Holding Real Estate

[Robert Barney]

I emailed one of the vendors of self administered plans. Here is the exchange:



I wrote:

I'm 57. I understand that at age 70 I have to begin making minimul withdrawals from my IRA (RMD).​

If I bought land at 57 for $150,000, and that is still the asset when I turn 70, what value do I use for RMD. Do I have to get a valuation done each year, to show the CURRENT value, or can I argue it continues to be worth what I paid for it.​

If I need to do a valuation, who has to do it?​

They replied:

Good afternoon, Bob:​

Required minimum distributions will apply starting the year that you turn 70 ½. We will require you to submit a formal appraisal from a real estate professional at that point. You will then be able to submit a valuation each following year.​

to which I asked:

Who does the valuation each following year?​

to which they responded:

The first year, we will need asset valuations of comparable properties submitted by a licensed professional. After that we will only need a letter from a licensed professional stating the value of the property, unless the value changes by more than 10%​

at which point I said:

And the IRS is happy with that system?​

to which they said:

Yes, PENSCO is in good standing with the IRS.​

 

[VolAgent]

Not surprising. The IRS wants to make sure you have the property valued correctly for RMD calculations.

 

[Full Throttle]

Robert,

I don't know enough about your situation, but have you looked at potentially converting a portion of your IRA to a Roth IRA (enough to cover the purchase price of the land) and then not having to deal with RMD's or issues with transferring to the next generation?

I don't know if the numbers play out for you, but something to run if you haven't already.

 

[VolAgent]

Robert,

I don't know enough about your situation, but have you looked at potentially converting a portion of your IRA to a Roth IRA (enough to cover the purchase price of the land) and then not having to deal with RMD's or issues with transferring to the next generation?

I don't know if the numbers play out for you, but something to run if you haven't already.

The beneficiary is still going to have to take distributions from the Roth IRA after death. Still may be stuck selling in a down market.

 

[Robert Barney]

It seems to me that if I put 1/3 of the IRA in land, and keep the other 2/3's liquid, I should be safe. If land values go up, and I have to sell, then land values are up - I win. If land values go down, it will be worth less than 1/3 of my IRA, and it leaves me lots of time to wait it out.

 

[njh_lfg]

Why not look into a cash flow producing asset like a rental property then you are not tied to solely the land value. There is a reason why so much undeveloped land is for sale. Unless you have a little inside info on future development plans I would look in other directions.

As for following up on my original post in the thread, at your age it would be better to purchase with non-qual money then the rmd won't be an issue.

 

[Norwayguy]

Why not look into a cash flow producing asset like a rental property then you are not tied to solely the land value. There is a reason why so much undeveloped land is for sale. Unless you have a little inside info on future development plans I would look in other directions.

As for following up on my original post in the thread, at your age it would be better to purchase with non-qual money then the rmd won't be an issue.

First I understand exactly what you are saying about Roberts age....But how often would younger people have the qualified assets to beable to accomplish this anyways.

 

[Robert Barney]

The more I listen to naysayers about this kind of property, the more I am leaning toward it. All tangible investments go through cycles. When gold is hot, there's a mad rush to buy it and prices go up mindlessly. Not the time to buy. When real estate is hot, prices go up mindlessly, as they have, and the time to buy is not when they are up.

And as I have tried to argue, I can get 220 acres of rural land for $135,000. Now, if the dollar drops to 25% of its value, will that land still only be worth $135,000. I would assume it would have to go up in price with inflation.

 

[Soaringagent]

Seems like it could be confusing. Is it worth the trouble?
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It's also really hard to sell undeveloped land in the future because it's difficult to get a mortgage on it.

 

[Robert Barney]

Seems like it could be confusing. Is it worth the trouble?
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It's also really hard to sell undeveloped land in the future because it's difficult to get a mortgage on it.

So what would you do to protect your IRA cash from the coming inflation?