Real Estate in an IRA, Part 2: Managing Assets in a Self-Directed Retirement Plan

Last week’s blog discussed setting up a self-directed plan that allows real estate in your IRA. As promised, this week’s topic covers how to properly manage those assets. There are specific rules you must adhere to in order to comply with IRS regulations so your self-directed IRA works for you instead of against you.

Now that you have set up your self-directed IRA, have it properly funded, and are ready to begin looking for property there are several things to keep in mind. While self-directed retirement plans allow many different alternative investment options, there are strict guidelines relevant to prohibited transactions and disqualified persons you must be aware of. Failure to comply could cause your IRA to suffer heavy penalties or even disqualification.

When exploring real estate options, know that your IRA is not allowed to purchase property from you or from another disqualified person. Your IRA is also not allowed to sell property to you or a disqualified person. Disqualified persons include:

  • The IRA holder and his or her spouse
  • The IRA holder’s lineal descendants (children, grandparents, etc.) and their spouses
  • The IRA holders lineal ascendants (parents, grandparents, etc.)
  • Investment advisers, managers and fiduciaries
  • Any corporation, partnership, trust, or estate in which disqualified persons have a 50 percent or greater interest
  • Anyone providing services to the IRA

Another important thing you need to understand is all property your IRA acquires is owned by your IRA and not by you. Any earnings gained, whether through resale or rental income, flow directly into the account. Expenses relative to the property must be paid directly from the IRA. When purchasing real estate in your self-directed IRA, it’s critical to plan for anticipated expenses in advance, so your IRA is prepared to cover them. If you have partnered on a purchase with other parties, your IRA only pays for its percentage of repairs and also must receive only its share of income.

Additionally, you are unable to use the property for personal purposes. For example, if you own a vacation rental you or other disqualified persons may not vacation there. The real estate was purchased to build wealth for your retirement. Using the property for personal purposes before you hit retirement age would be considered a current benefit and your IRA will be penalized, if not disqualified.

You are personally not allowed to perform repairs or maintenance on real estate in your IRA. Doing so constitutes “sweat-equity” and is considered a contribution to your account. The IRS only permits contributions to an IRA to be made in cash—and sweat equity cannot be measured in value. Repairs and maintenance must be performed by a third party—who is not a disqualified person—and paid at current market rates.

On the flip side, you do not have to hire a third party to manage the property in your IRA. The IRA owner is able to manage the property as long as you don’t perform sweat equity or pay for expenses out of your own pocket. Again, all income and expenses flow directly into and out of your self-directed IRA. Rent checks and other income must be written to the IRA and deposited directly into the IRA account. Income or expenses are not allowed to flow through the IRA owner for any reason.

Hopefully it goes without saying that it is crucial you perform due diligence when looking for real estate to acquire in your IRA. You want to find a decent property in a location suited for the purpose you desire. If you want a quick rehab-and-flip, the goal would be that the cost of the property plus the money it costs your IRA to renovate is low enough for your IRA to make a profit at resale. Location is key whether conducting a rehab or acquiring rental property—you want to be as sure as you can there is a market for resale or good potential for acquiring tenants for rentals.

If you have any questions regarding real estate in your IRA, please contact Kevin Collins at AdvantaIRA Trust by calling (617) 830-1070 or emailing


Wholesale deal in MA, Buy/holds in TX

IMG_6048   Deals here and deals there!

Wholesale deal in Gardner, MA; 5BR, 2BA, 1084 sq ft, 2 car garage, 2nd lot

ARV – $114k, asking $44k, Rehab est. $30k, needs to close by 8/29/2014.  Contact us today for details.

For you out of area investors:

Central Texas Property Deals

Cascades – Pfl – 412 Cascades Ave, Unit #2, Pflugerville, TX 78660

2215 Creekside Gtown 4Plex, Georgetown , TX 78626


Dog days of summer promotion


So, Than Merrill and his team are coming to the Boston area August 14-17th.  They will tell you to seek out your local investors association to find deals, meet people to partner with and meet people who can help  fund the deals.  The education they offer is great, but, they will tell you that the best place to make those connections  is by joining your local association.  Perfect timing for all of you looking to get a jump start!

Usually we do a special promotion in July….as you know, life has been crazy!  So, instead we are doing a DOG DAYS OF SUMMER promotion:

View MEMBERSHIP OPTIONS and click JOIN NOW next to the membership of your choice.

When you check out, choose a DOG DAYS OF SUMMER membership option.  Save $25.00 off an Individual membership and $50 off a Joint Membership!  The DOG DAYS OF SUMMER promotion end midnight on August 13th!

The first 5 members who join or renew their membership by August 13th, will be awarded 2 free coaching sessions with me!  Your choice of topics!

Remember, our membership benefits save you more than the cost of membership each year!

Learn how to get the most out of Boston Areal Real Estate Investors Association!

Diary of a Newbie Real Estate Investor – Rehab Tour, Sat. 8/9/2014

IMG_6048  Good morning folks!

I got some incredible news from Mike and Jacqui yesterday!  They closed on their property and we are doing a Rehab Tour on Sat, 8/9/2104 at 1pm at 26 McAdams Rd, Framingham, MA.

Please RSVP to to let us know you will be there.

Check out Mike and Jacqui’s post:

mike and jacquiWe are excited to announce that we closed on 26 McAdams Rd, which is a single family home in Framingham that we picked up off market and are going to rehab and sell. It is currently in rough shape, it has been vacant for 3 years and needs a complete rehab. We will be posting about how we finanaced the project, started our company, and are managing the budget and work items for the rehab.   

We are about 1 week into the project and moving along quickly with demo and landscaping. We will be sharing renovation plans and progress pictures shortly! 

For now please check out our before rehab pictures

Have a great weekend,


Diary of a Newbie Real Estate Investor 7/1/2014

So…after about 4 months of mentoring….listening to me (Bernadette) drone on about the website, Bernadette Trafton, Chief Connectormarketing, branding and social media and listening to Peg (JEM Property Group) on deal structuring, writing contracts and more…I just got this blog post!  I can’t tell you how proud of Mike and Jacqui I am for actually listening to us, taking it in and then, above all, taking action!  This is WAY BEYOND COOL!

mike and jacquiThe Deal & Advice for Our Fellow Newbies

We finally have some exciting news!  We have an offer accepted for our first rehab deal and will be closing by the end of the month.  I have to say, we were starting to get discouraged.  We had been marketing with door hangers, direct mail, driving for dollars and attending as many networking meetings as our free time would allow.  But so far, no deal.  Weeks turned in to months and we just felt like nothing was going to happen.  Then one day we suddenly had a house and we are overwhelmed (in a good way) with the amount of work to do.

How did we get the deal?  Mike and I spent a lot of time working on our website with the help of Thrivehive and wanted to make sure that if someone did come across our webpage it would be easy to navigate and easy to get in touch with us.  We have received leads through our website about potential deals before but this is the first lead where we were like “Wow! We NEED this.” (*note from Bernadette, the tracking that Thrivehive provides is awesome, and they build the website using your ideas, so glad they listened on this one and their website – looks awesome!)

A seller was calling local investors to quickly sell his home.  When we returned the call the seller stated he had accepted another offer with a national rehabbing company.  Mike asked “Did you sign anything??” (He didn’t!) We told him we would view the property that night and get him an offer by 8am the next morning.  So we grabbed our flashlight and ladder and snuck around in the dark peeking through every window and door.  We were able to see the heating system, water and electricity through the basement windows.  The upstairs was UGLY which is perfect for us.  We went to bed confident and excited that we could get this house.  This was exactly what we were looking for.

The next morning at 7:30am Mike gets a call from the seller who says he is sorry but he is only accepting the first offer.  WHAT!? Even though we hadn’t even been inside the property we decided to take action. We made an offer during that phone call…. rejected.  We made an offer over text message…. rejected.  We tried to call again… ignored. Finally Mike decided he was going to email the seller an official offer with a copy of our check to purchase.  A few hours later we received a call from the seller’s attorney. After a conversation between our attorney and the seller’s attorney we had a signed and accepted offer.  Talk about a roller coaster of highs and lows.  Peg was very helpful giving tips on how to pursue this deal and then walking us through the financing process.  We may not have been able to seal this deal without her!

Now that we have an accepted offer how are we going to pay for this? They say the money will come when you have a great deal.  True and false.  The money comes with a price.

What we learned so far:

1. The quote “It takes money to make money.” is true.  With this deal we had no issues with finding lenders, the problem is they can come with a big cost. We are looking at putting out a minimum of $35k with the private money and bank options we have considered so far. Do your research and be prepared to go all in, if you don’t believe in your investment who will?

2. Set up your business legally.  The week we got the deal under contract we had to scramble to get our LLC registered.  We had no idea that the majority of lenders only loan when you have a business.

3. Get all your ducks in a row.  Be prepared and have your key group of people readily available. Lawyers, contractors, plumbers, electricians, real estate brokers, lenders. Mike and I needed some help here. Thank you to our mentor, Peg, of JEM Property Group for being available 24/7!

 4. Be prepared to make a very detailed list of what you plan on doing with the property.  Exit strategy, marketing plans, comps, rehab plans. You will need to present this to potential lenders and investors. It is also just good to have a business plan for your own reference.

We plan on having 2 open houses (one during construction and one at completion) for Boston AREIA members and Fitz Property followers.  We look forward to seeing everyone and answering questions and hearing your advice.  In the meantime we are continuing to market and look for future rehab deals. Keep reading the blog in to hear about our progress.

Also please check out where we will be posting pictures of our recent major remodel of an apartment in one of our rental properties.

Mike & Jacqui


How should you choose your IRA Custodian for your investing deals?

Choosing an IRA custodian is as important as choosing investments. Some custodians do not allow alternative investments to be acquired as assets using your IRA. Some self-directed IRA administrators that allow alternative investments (such as real estate investing) may restrict the types of investments they allow as holdings. Additionally, there are strict rules and regulations one must follow when purchasing assets. If you make the mistake of acquiring an asset your custodian does not allow, you and your IRA may suffer harsh penalties handed down by the IRS. The same is so if you perform a transaction that falls outside the boundaries set forth in the rules that govern retirement funds.  Access the Advanta IRA ppt that Kevin Collins presented at our meeting in June –  Retirement Revolution Presentation

If you want to control your own investment funds in your IRA, you must first make sure you open an account with an administrator that facilitates self-directed IRAs. These accounts allow a myriad of alternative investments in them, such as real estate, private lending opportunities, precious metals, oil and gas options…and much more. As the account owner, you have the freedom to choose your own investments to build wealth toward retirement. The custodian acts only at your direction to acquire assets in your account.

Even though laws governing IRAs allow real estate and other non-traditional investments in your account, not all custodians allow those assets. A recent example of this was illustrated by the tax court in a proceeding filed by Guy Dabney. Although Dabney familiarized himself with IRS allowances of assets in IRAs, he failed to comply with the rules of his IRA custodian, Charles Schwab & Co., Inc., who does not allow real estate in the IRAs they administrate. Even so, Dabney performed an action to acquire the real estate that he thought would constitute a permissible trustee-to-trustee transaction. He had Charles Schwab wire $114,000 directly from his IRA to the company selling the property and asked the property be titled “Guy M. Dabney Charles Schwab & Co., Inc. Cust. IRA Contributory.” The purchase was made, however, the property was accidentally titled in his name. Dabney was able to have that clerical error officially fixed, but Schwab still sent Dabney a 1099-R form, declaring he had taken an early distribution which was taxable to him as he was not yet of the age of 59 1/2. Dabney did not report the withdrawal on his income tax that year, stating the real estate purchase was made by the IRA and / or should be considered a trustee-to-trustee transfer because of the way the property was acquired.

In considering the case, the IRS made several determinations. First, Schwab does not permit real estate investment purchases or holdings in their accounts; second, the title company to which the $114,00 was transferred was not, in fact, an IRA trustee and therefore, no trustee-to-trustee transaction was performed. There were a few other reasons the tax court based their decision on, which can be read in full in an article published by Parker Tax Publishing, and the withdrawal was considered an early distribution—and taxable for Dabney under IRS regulations.

The main takeaway here is that even though self-directed IRAs give you control of your investment decisions—you are responsible for adhering to your IRA custodian’s own set of rules regarding investments they will allow your account to hold. Not all custodians are created equal! Due diligence in researching a custodian that is a good fit for your investment endeavors is critically important. Dabney could have avoided his unfortunate complications had he decided to roll funds from his Schwab IRA into a self-directed IRA administered by a custodian that allows real estate assets and made the purchase from that account. Be sure to select a firm that is accessible, willing to discuss your transaction, assist you in completing the required forms, and ensures you provide the proper documentation. Most importantly, a firm that give you and your retirement portfolio the personalized service you deserve.

With Boston AREIA’s vendor, Kevin Collins of AdvantaIRA, you will get the personalized service you are looking for when doing your real estate investing deals in and around the Boston area.  If you would like to learn more about how self-directed IRAs can build wealth toward retirement, please contact Kevin Collins at AdvantaIRA Trust by calling 617-830-1070 or emailing

Attention Boston Flippers – Deals are flowing

Bernadette Trafton, Chief Connector   Attention Boston Flippers, Real Estate Investors and Rehabbers in Boston, Buy and Hold investors and more!!!

Deals are flowing in and around Boston!  The last few weeks have been incredibly exciting!  Nothing pleases me more than when my new and seasoned Boston Real Estate Investors email and call me telling me about their deals!!!  If you were at Boston Area REIA last week, you would have heard our Mentee Mike Fitzpatrick talk about his first deal!  The exciting part is that Peg Graveline of JEM Property Group and I have been having almost weekly sessions with Mike and his partner Jacqui Pietrzak.  We’ve been hitting hard on finding deals, contract negotiation and more.  I know that Mike and Jacqui were probably sick and tired of hearing me push marketing and getting their website set up and more.  But, in the end that paid off!!!  Last week, a lead came in through their website that was created by our friends at Thrivehive!  Yes, I will personally connect you with them, if you’d like me to!  After the website being up for 2 months and actually live for only a month, a lead came through.  Mike and Jacqui will tell the whole story in their blog “Diary of a Newbie Real Estate Investor”, but, they got Peg on the phone and after following her guidance, put the property under contract and are working through the deal right now!

Right before the meeting, I got another email, from one of my newest investors saying that he had a property under contract in Mattapan!  He wants to wholesale this folks, so, if you are interested, contact me.  This may be an awesome opportunity for those looking to buy and hold and could be great for those Boston contractors out there who are looking to get in the game and will do the rehab themselves.

I got another phone call right before the meeting from an investor who had a deal under contract and they were looking for hard money lenders.  I saw them at the meeting and they let me know they were working with a lender and the deal was in progress!

Then I got an email from another Boston Real Estate Investor, letting me know that he had a deal.  We are still vetting everything so, I won’t get into the where’s and the what’s of it all.

I’m getting so excited about all the activity, that I’m setting up a member specific email list to send the wholesale, buy and hold and other deals that are flowing through the group!  Become a member today, to be the first to receive news of these deals!  If you need another reason to become a member, be sure to check out all of the member benefits that can save members hundreds and thousands year.  I’ve always said that it costs more NOT to be a member of BostonAREIA!  My brother, who is a contractor saved 70% on paint through the Sherwin Williams paint discount alone! It was definitely more than the $175 it costs to be an individual member!  Oh, and if you were at our last meeting and you didn’t become a member, expect an email from me with a coupon thanking you for being a visitor in June!

My life has been crazy the last few months.  My mother has been ill and in and out of the hospital, I’ve been having tenant issues, family craziness and more.  We all have this type of stuff going on in our lives.  So, do me a favor and before you let anything get to you, stop, breathe and know, as my friend Bruce Decker says, “Remember that crap is just fertilizer for future growth!”

Happy investing!


Bernadette Trafton, Boston AREIA Chief Connector


Are you able to leverage your credit or is it holding you back?

WHEN:  Thu 5/15, 2014credit pic

WHERE:  Hyatt Place, 116 Riverside Ave, Medford, MA

Thursday 5/15; 5pm – 5:30 pm for Members of Boston AREIA ONLY before the May monthly meeting!

Members join us for a special coaching session focused on Credit!  Are you able to leverage your credit or is it holding you back?  Veteran Mortgage Pro Ric Beaudoin of Sage Mortgage.  This is not a Credit Repair session, however, Ric will cover:

• The basic facts of credit reports
• What is and is not included in the credit report or credit score
• Why use credit scores
• Components of a credit score
• Statistical weights
• Consumer rights
• Correcting and improving credit scores

P4178105Followed by OPEN NETWORKING from 5:30pm – 6:30pm, the energy has been building every month!  Make sure you bring tons off business cards and save some for the forced networking section!

Thursday’s topic is all about exit strategies…you’ve got the property under contract, NOW WHAT???

Click here for all of the meeting details!




Diary of a Newbie Real Estate Investor

Bernadette Trafton, Chief ConnectorGood morning folks, Well Mike and Jacqui have been moving forward with their real estate business.  Their website is almost complete, they’ve been doing direct mail marketing and Mike was able to go to a property with Peg and a few others with the agent he’s working with.  A little over a month ago, I got a call about a property in Newton center.  I figured that this would be a great learning opportunity for Mike.  I called my co-mentor Peg Graveline of JEM Property Group and set up a time for them to go view the property.  Mike took all the pictures and got to watch Peg negotiate and sign the contract.  In the Wednesday night mentoring sessions that we do every week, we’ve covered how to put together a package for exit strategies for a property.  This is essential when pulling together funding partners or presenting to investors you may want to wholesale the property to.  We’ve covered the importance of consistent marketing and developing relationships with Realtors.  I introduced them to my favorite account Joe Craft, CPA and in our most recent session introduced them to John Syron of Aurelian Lending to go over the possibility of using their Unsecured Lines of Credit program.  We will be doing a new webinar on this service in May.  Stay tuned.  I also sent them a property in Dorchester that came across my desk this past week.  Not sure if they went to view it, that’s for the next post.  For, now….what have Mike and Jacqui been up to over the past week? mike and jacquiUpdate: Evaluating Potential Rehab Deals Since our last post we have been working with local real estate agents to learn more about the market for single family rehab investments. Last weekend, we went out with Matt Heisler, an investor friendly real estate agent who specializes in the central and metro-west markets.  Matt understands we are looking at properties from an investment point of view and has been a great resource.  With Matt we looked at properties inside the 495 belt, but about 30 minutes away from our target market of Framingham. The first house we saw, the Cat House, was a small 900 sq ft ranch in your average working class neighborhood. We immediately noticed the smell of cat urine and that the house was pretty much a mess. Our hunch is the house is currently rented to tenants and the seller may be motivated due to the extensive deferred maintenance inside and outside of the property. To expand the house, we could potentially add value by finishing the basement and adding a garage. However, we are unsure if the addition of a garage provides a significant enough return on investment to make it worthwhile. Our research suggests you may only get a 1:1 return on the money you invest to build the garage, however you will attract a larger market of potential buyers. Kitchens and bathrooms all need to be gutted and the exterior of the house needs some cleaning up.  House has original hardwoods throughout but the current tenants have let their cat wild and don’t seem to care about cleaning up therefore flooring needs to be replaced.  We are thinking of offering $160k. Estimated rehab costs: $45-60k depending if we add a garage) Potential sale price: $250-275k. House number two, the Old Folks House, seemed much more promising and we will admit, it was a breath of fresh air walking in. No cat urine! This was a much larger ranch in a quiet hill top neighborhood.  Real estate owned property that has been on and off the market for the last year. Needs new kitchen, paint and possibly updating the basement.  The basement was finished probably 25-30 years ago and although it is large and bright with a full bath, it is outdated. We would want to refinish the basement, but are concerned about return on investment. The house is located in a beautiful neighborhood, however across the street is a large Victorian that has been converted to a nursing home.  Not really an eyesore, but definitely out of place in a neighborhood of single family homes.  Is this a deal breaker for buyers? To be on the safe side of the budget we are reducing the estimated after repair value by 5-10%.  We are thinking of offering: $200k. Estimated rehab costs: $50k. Potential sale price: $315k. As we move forward we are still refining our investment criteria for a rehab property, however we are current looking for: 3-4 bedrooms with the potential for 2 full bathrooms, hopefully a master bath or space to add one in.  If the layout is not ideal, is it easy enough to manipulate? After that we don’t really care what the inside looks like because we will probably be replacing most of it, so the uglier the better. We also look outside and at the curb appeal, is there enough yard? How is the neighborhood? Spy on the neighbors, would you buy a house here?  From a numbers perspective we are targeting a minimum of $30k profit and for houses over $300k we are targeting a profit of at least 10% of the purchase price. Stay tuned to hear about any offers we put in and if accepted, how we were able to finance the deal as new investors.  In the meantime we are sending out our next batch of direct mail letters.  With our last mailing we got one response “Please take me off your mailing list”.  Hey, at least we know the letters were read! If you want to get in touch with us please contact us at or

How does "forced networking" help you flip properties

P4178105 I have people ask me all the time, “What is ‘forced’ networking and how exactly does it help me flip properties in the Boston area?”

Forced networking is for everyone.  Originally we started doing it at Boston AREIA for the wall flowers of the group.  You know the people who are uncomfortable walking up to someone and saying, “Hi, my name is ……………….. and I’m a new investor and I want to meet…”   I wanted to give those folks a way to get business cards from people so they could call them up later and meet with them.  But, it’s turned out to be one of the favorite sections of our meetings.  For the wall flowers and everyone else as well!  During our forced networking section, we bring different groups of people to the front of the room…for example, “Can all the wholesalers come up to the front of the room…now, everyone who wants someone else to find them deals, come up and exchange business cards, don’t talk for 5 minutes, exchange business cards and move to the next person…”  This is the fastest form of speed networking that you will find.  We don’t give you 5 minutes, we give you 5 seconds to exchange business cards so that you can connect with the people you want to after the meeting in a one on one setting.  Wholesalers love it because they are able to increase their buyers list quickly.  Rehabbers/Flippers love it because they get a whole new group of people looking for properties for them.  Realtors and lenders love it because they get a whole new group of people that they can connect with where real estate is concerned.  And, you know what happens when you connect an entire group of people focused on flipping properties in some form or another?  Deals get done!  So, forced networking most definitely helps you to flip properties.   Check out some of our pictures from our last meeting…we began with a coaching session, then went to regular networking, then forced networking, then speakers for education.  If used properly, your Boston AREIA meetings will help you build your power team and help you make connections, business partners and friends that you will work with the rest of your life!

Yours in success, Bernadette Trafton, Boston AREIA Chief Connector

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