Madison Investing - Passive Income from Real Estate

 You can use your retirement funds to invest in real estate.  

I will say it again: You can use retirement funds to invest in real estate.

"SDIRA" = an umbrella term used to describe any type of retirement account managed by a custodian or administrator who actually allows you to invest in alternative assets - including real estate, tax liens, syndications, precious metals, etc. It stands for Self-Directed IRA. There are many different types of Self-Directed IRA, but don't let it overwhelm you. You will read countless articles online that add more confusion than help bring clarity, but we are happy to provide insight into our own learnings on the topic. 

For quick reference, we've ranked our preferred account types for investors interested in rolling over their retirement accounts into a more flexible option, that allows you to invest in alternative investments - such as real estate, precious metals, collectibles and beyond. These are ranked in the order of what we endorse most-to-least:

  • QRP (Qualified Retirement Plan): a custom account structure created by the team at Total Control Financial, specifically for the purposes of investing in real estate estate. It provides a few key advantages over the other two options below:

    • Speed: You can invest 24-48 hours after saying "go"

    • Taxes: Investing from a QRP avoids getting taxed via UBIT - learn about that here in an interview with Damian Lupo, founder of Total Control Financial.  Said simply: if you buy real estate that uses debt in the transaction (a loan on the property), IRAs may be taxed in a large and unpleasant way when the property sells. QRPs are not subjected to these taxes.

    • Fee Transparency: Fees are spelled out up front, whereas other IRA custodians tend to bury fees as %'s deep in fine print

    • You can borrower against it (up to a limit)

    • Click here to request a free copy of the QRP Book, courtesy of Total Control Financial. Unlike most other free books out there, this book is legitimate and instructive content. After extensive online research, comparing the options and reading this book... our personal decision to move forward with the QRP was a no-brainer.

      • Disclaimer: We use this account time for our own retirement funds. We have investors who also have rolled over to this account type. We like the product and experience so much we became an affiliate with them.

      • To be clear: an eQRP is a type of Solo401k, but it has added asset protection legal structure with it. 

  • Solo401k: most, but not all of the advantages of the QRP. Likely avoids UBIT still. 

  • SDIRA: Allows you to invest in alternative assets, just like the other two. But there are two big reasons this account type is at the bottom of our list:

    • Slow speed: This account type is at the bottom of the list because it can take at least 7-10 days to pull the trigger on an investment once you say "go." The custodian often requires paper on each deal be sent to them so they can review it and then fund the investment from their end.

    • Higher taxes: Unless you are participating in cash-only real estate investments, investors who use an SDIRA account will likely end up paying more taxes. A lot more.

If you would like to run your own diligence across a list of 46 SDIRA providers that specialize in these types of accounts, here it is: The Ultimate List of Self Directed IRA Custodians and Administrators

So, why don't more people know about this option? Well, it comes down to this simple fact: the Wall Street marketing machine wants you to keep your money funneling into 401k and IRA providers who exclusively provide investment options in the form of:

  • 401ks

  • Mutual funds

  • Target-date accounts

  • And other narrowly restricted options

Ultimately, you have to make an informed decision about the right type of account for your specific needs and situation. The account types mentioned above are NOT a 'one size fits all.' That said, we wholeheartedly endorse the category of "self directed" investing. That is why we have shifted the majority of our own personal retirement funds into this type of investing and our investors continue to do so, on their own wealth building journey. 

How to invest in real estate with your retirement accounts

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