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


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,


5 reasons real estate investors may want to exchange your property

Bernadette Trafton, Chief Connector   Good afternoon investors,

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Vice President Certified Exchange Specialist New England Region (877) 781-1031 Toll Free

I was talking to Patty Flowers from IPX 1031           Exchange Services the other day.  I asked her what the main reason there were for real estate investors to exchange properties and why it’s important to know about this even as a beginning investor.  She shared this article with me about the five reasons to exchange your properties.

FIVE REASONS TO EXCHANGE – A story about Appreciation, Depreciation, Cash Flow, Diversification  and Tax Deferral

If a real estate investor bought an apartment building for $100,000 in 1975 and it is now valued at $1.8M dollars, the property has appreciated significantly and is now worth eighteen times what it was in 1975. Clearly, this was a great investment. But, like all investments, one should analyze whether it is now better to hold or to divest the asset.  The apartment building is currently owned free and clear of debt. It has been owned for more than 27.5 years so it is fully depreciated and no longer eligible for annual depreciation deductions on the investor’s tax return. Reviewing the cash-flow, after property taxes, maintenance, and insurance, it produces net rental income of about $3,000 per month.

$36,000 per year on an investment property worth $1.8M amounts to 2% annual income on the investment. However, the original $100,000 investment has grown by 1800% and there is now $1.8 million dollars’ worth of equity tied up in one asset. Since interest rates are at historic lows, what better time than now, when property values are lower than they were a few years ago, to unlock some of that equity and exchange, tax deferred, into one or more properties with greater income and long-term appreciation potential?

Through an I.R.C. §1031 exchange, this real estate investor can sell his investment property and accomplish a number of tax and investment goals. A 1031 tax deferred exchange permits the investor to defer federal and state capital gains and depreciation recapture taxes. The investor can buy property with improved cash-flow, and if encumbered, with an interest deduction to be claimed. If the replacement property is greater in value than the
relinquished apartment building, then depreciation deductions will also be available for the increased basis (the difference between the purchase cost of the new property, less the gain deferred on the exchange of the old property). Additionally, because multiple properties can be acquired through a single exchange, the investor can diversify the real estate portfolio, thereby hedging the investment risk inherent in a single property.

Appreciation, depreciation, cash-flow, diversification and tax deferral are important drivers for doing a §1031 exchange. Investors should examine their real estate holdings and do the 5 point analysis suggested in this article. If repositioning a real estate portfolio is in order, the valuable tax benefits of a 1031 exchange should be considered. Investment Property Exchange Services, Inc. (IPX1031®) is a Qualified Intermediary providing a full range of tax
deferred exchange services across the country including forward, reverse and build-to-suit transactions. We look forward to helping you and/or your clients maximize qualifying investments through a §1031 exchange strategy.

Be sure to join us on June 19th when Patty breaks down the process of 1031 exchanges. 

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!




What is a Hard money loan?

Bernadette Trafton, Chief ConnectorHard money loans are used daily to fund real estate projects and are typically focused on the value and after repaired value (ARV) of the property instead of focusing on the borrower’s ability to pay back the loan.  It is a real estate backed loan.  You would use hard money in instances where you can’t get traditional financing because your debt load is too high or the property won’t qualify because of the work that needs to be done to make it liveable.  Hard money is typically short term, usually the estimated amount of time it’s going to take to complete and resell the project.  Depending on the project and the lender you are working with, this may include the cost of the rehab.  And, typically a hard money lender will want you to bring money to the table so that you have “skin in the game”.

Hard money loans got their name because they are typically higher risk and the payback percentage and points associated with the loan are higher than traditional loans.  You maybe looking at 2-5 or more points depending on the deal and 12-15 percent.  Now don’t freak out.  It sounds like a lot, but, if it allows you to do a project where you can earn $30k or more after all fees and such are paid, in a short period of time, it’s worth it.  Just, remember, the property is the collateral and just like a traditional lender can foreclose, so can your hard money lender.  But, trust me, they don’t want to foreclose and they don’t really want the property, they want the money and interest to put into more deals so that their money is consistently cycling through deals and making more money.  It is expensive though, so if you can find private money through family, friends and networking connections, go that route first.

Be sure to “dig your well” before you are thirsty.  Let friends and family know what you are doing.  Let them know that you are working with a team of experts (at Boston AREIA, of course) who guide you through deals.  The folks that are interested in “getting in on that” will let you know.  Just don’t be shy about what you are doing.  And, when you hear success stories about someone flipping a property or flipping a wholesale contract, let them know.  You can even invite them to come with you to Boston AREIA so they can meet seasoned investors and can become more comfortable.  They can also meet folks like Kevin Collins of Advanta IRA who can explain how they can invest through their IRA.

There will be times that you will need hard money to get your deals done.  That’s ok.  Your goal is to develop long term relationships with a few lenders.  The longer the relationship and the more deals you do, typically the less it will cost you to borrow the money for your deals over time.  Hard money lenders appreciate those long term relationships that offer repeat business just as much as you appreciate knowing how you will get your deals funded.  When looking for a lender, please contact me!  I work with a few trusted sources in the Boston area that I’ve known for quite a few years.  I can make a connection for you.  Typically they appreciate it more if you are bringing a possible deal to the table, but, it’s not absolutely necessary.  These folks can also be used as a fail safe if you will.  For example, you’ve got the property under contract, with a few contingencies so that you can get out of the deal (that’s another topic) if need be.  You aren’t sure that you ran your numbers right and you are nervous.  That’s ok, these folks will analyze the deal and they will let you know if you are on track.  If it’s a deal, they will lend.  If it’s not a deal, they will let you know and won’t lend.  I have one who has been known to restructure deals so they do make sense for both the borrower and his company.

As always, if you have questions, feel free to reach out to me!  I’m here to help!

Yours in success!

Bernadette Trafton, Boston AREIA Chief Connector


Thur 4/17 was a ROCKIN' meeting about funding!

OLYMPUS DIGITAL CAMERAThursday’s meeting was absolutely ROCKIN’!  Standing Room Only!

These are just some of the comments we got:

Anya wrote, “A can-do approach to real estate investing!”

Ann wrote, “There was a lot of great information!”

Karen Lee wrote, “This was my first meeting with BostonAreia and it was full of invaluable info on raising capital. I initially went to get more info on the IRA funding for real estate but left with a bunch of new ideas. Many thanks to Bernadette for arranging this meet up. I’ll be back.”Bernadette Trafton, Chief Connector

Kathryn Acciari wrote, “Good morning Bernadette,It took me a few years, but I finally made it to a meeting and I am very happy to have done so.  Last night was quite informative, and I am excited to be looking at next steps. What a friendly and professional group of people you have at BostonAREIA.  I hope to be a regular attendee at the meetings and to also be able to provide folks with some connections and leads in Worcester County.  There are deals out here.  Thank you!”

First, I want to thank the members that took the time to walk up to me to thank me for such a great meeting and thank you to those who took the time to send a quick note!  I love the members of Boston AREIA!!!  Kathryn is absolutely right about what a friendly and professional group of people we have.

A quick recap…So, we started our 5pm coaching session which focused on building and developing your connections through networking.  I hope that everyone got a lot out of it and if you are a member of Boston AREIA and you want a copy of the powerpoint, make sure that you contact me at  Remember folks, it’s important to contact the people you met at the meeting no later than Tue and plan to get together for coffee.

OLYMPUS DIGITAL CAMERAWe began the meeting and of course, everyone knows that ENERGY IS EVERYTHING!  The energy you put into something is what you will get out of it.  So, first 5 lucky investors had their business cards pulled out of the proverbial hat and were given the opportunity to stand up and promote themselves to the group.  We followed this with forced networking…which gave folks the opportunity to exchange business cards fast and furious with rehabbers, wholesalers, investor savvy Realtors and more…I think that section is a favorite among our investors!

We followed the networking section with Dickens Pierre-Louis putting together a market update…we actually sped through this section because we had so much jam packed into the meeting…I will be posting this soon.  Thank you soooo much Dickens!  Our mentee, Mike Fitzpatrick got up and talked about how he and Jacqui are progressing and asked if folks could please vote on their logo – check out the blog post!  Then, Peg Graveline and Lisa West of JEM Property Group and Dan McKenna of Mckenna Family Homes walked through the numbers of the Walpole deal!  They made it real and dispelled some of those beliefs people get from the flipping houses shows on tv.  After that, we introduced our phenomenal panel of funding experts.  Peter McLoughlin talked about hard money, how it’s used, what a lender will expect from the borrower, one of the hottest topics based on questions asked by the group, was Investing through your IRA with Kevin Collins of Advanta IRA, then Ric Beaudoin of Sage Bank went over traditional lending, Kim Harrington covered how to develop your funding partners and Peg Graveline covered JVing with other investors to get your deals done.  What a great night!  I have to tell you, I had more people walk up to me at the end of the meeting to tell me how much they appreciated the programming and the speakers!  Thank you so much to Peter, Kevin, Ric, Kim and Peg!

Next month, we are doing a special coaching session from 5pm – 5:30pm for members.  Ric Beaudoin is going to come back and he’s going to go over becoming credit worthy for those with credit problems and maximizing your credit score with those who don’t have issues, but would love tips to get your score as high as possible.  After that, it’s all about exit strategies….so, the contract is signed, NOW WHAT?

See you next month!  And, remember, if you need something or if I can help with anything between meetings, feel free to reach out to me.  Happy Investing!

Yours in success,

Bernadette Trafton, Boston AREIA Chief Connector

Are you an amateur or a Pro?

Bernadette Trafton, Chief Connector Are you networking your way to success?  We all go to networking meetings, collect business cards, shake hands and network with people.  MOST people go home, put the stack of business cards on a shelf and don’t really do anything with them.  However, what we do afterwards is what truly determines if we are amateurs or pros and ultimately this dictates our success.  On Thursday, April 17th at 5pm, we are doing a special coaching session from 5pm – 5:30 pm for members of Boston AREIA only.  We will cover how you can go from being an amateur who just spends your time going to meetings to a pro.

Learn to: networking pics

  • Develops your connections
  • Provides value
  • Become a person of influence.

Members must RSVP for this coaching session by Tue 4/15 via email at

See you on April 17th!

Happy Investing,

Bernadette Trafton, Boston AREIA Chief Connector

Boston AREIA Diary of a Newbie Real Estate Investor

mike and jacquiDiary of a Newbie Real Estate Investor

with Mike Fitzpatrick and Jacqui Pietrzak

Since our last post Jacqui and I have been working closely with Peg and Bernadette to put together a plan for accomplishing our $50k profit rehab goal. Our focus right now is finding a property to buy. Recently we have been spending our time driving for dollars and meeting with local realtors to explain our goals.

If you have never tried driving for dollars, I think it’s fair to say your first time is going to feel awkward. It is hard to look normal when you are circling a neighborhood, slowing traffic and wondering if you look like kidnappers. Essentially our plan was to pull up to a distressed looking property, run out with our “we want to buy your house” flyer, wedge it in the door, then run back to the car as quickly as possible and drive off avoiding any human contact.

Realizing it is less creepy if we actually get out and speak to people, our second attempt went much better. Now that the weather is getting nice, something we are more comfortable with is “running for dollars”. We take our dog with us on the run as this makes us feel more “normal” and offsets the fact that we have a pocket full of flyers and a notepad to write down addresses.  People are willing to give you more information when you look like another neighbor walking around.

Time will tell if we end up with any leads, but it certainly was a good way to become more familiar with the neighborhoods in our area. Through some of these conversations we learned about other houses that were already being rehabbed. At first the thought of another rehabber in my target neighborhood was a bummer to us because we felt someone else beat us to the deal. But we are currently trying to get in touch with these other investors so we can learn from them and see if we could work together in the future.

We have also started setting up meetings with brokers in the metro-west area that are interested in working with us to find rehab and multi-family buy and hold deals. Anything within a 20-30 minute radius of Framingham is what we are looking at. If you are interested in working with us please drop us a message at or and we can set up some time to talk.

In the next couple weeks we are planning on launching our company website and first direct mail campaign. We are trying to narrow down our favorite logos for our company, stay tuned for a voting poll in our next blog post!

Mike & Jacqui

Benefits for Boston Flippers and more

Bernadette Trafton, Chief Connector Did you know as a member of Boston AREIA you have access to a number of discounts to help you as you flip properties in Boston!  Oh…and remember, be sure to check out our How To’s Tips and Tricks for Real Estate Investing!

1.       You have access to discounts on materials, tool rentals, appliances, tenant screening, insurance, signage, office supplies, car rental, airfare and much more.  Check it out:

  • AAPLDi
  • ADP
  • Build-A-Sign
  • Community Investor
  • CheapOair
  • ClearNow
  • CreditSense
  • FedEx
  • Hertz
  • Investor Protector Plan
  • Junk-King
  • Kwikset
  • Lowe’s ProServices
  • Mr. Landlord
  • National Vendor Management Services
  • OdorXit
  • OfficeDepotMax
  • Performance Settlement
  • RentFax
  • Rent Fast
  • Rent Manager Software
  • Sears Commercial
  • Sherwin Williams
  • SimpliSafe
  • Sunbelt Rentals
  • Tattle Tale
  • Tenant Credit Checks
  • Titan Environmental
  • US Credit Repair Center
  • US Legal Forms
  • 4Imprint
– See more at:

2.       You will have access to our Community Investor magazine 3.       You gain visibility for your business and find trusted industry related contractors in your community To see all of the information about this program, visit If you are a member of Boston AREIA, you will have received a member packet with the group code.  If you don’t have your packet any longer, please email me at to request the code. If you are not a member, but, and want to take advantage of the member benefits, become a member today!  Make sure that you stay tuned for our upcoming blog post Diary of a Newbie Real Estate Investor with our new mentee Mike Fitzpatrick!  And, see you at our June 19th meeting focused on 1031 Exchanges and much more! As always, feel free to reach out in between meetings, we are here to help you get your deals done!

What to expect on March 20th at Boston AREIA

Bernadette Trafton, Chief ConnectorWe are having a blast mentoring Mike Fitzpatrick.  He’s working with his partner Jacqui Pietrzak, look for their next blog post.  They’ve been driving for dollars, working on their website, putting together their first direct mail marketing campaign and presenting potential deals to Peg and I.  Super proud of them!  I’m watching a power couple develop!  WOHOO!

It’s the LAST day to get eligible for this month’s workshop at 5pm.  I will be downloading real estate leads from a few lead sources and giving them to the folks who come to the session.  I need to know now who is coming at 5pm.  If you don’t qualify by midnight tonight, you won’t be able to join us at 5pm before the monthly meeting!  Find out if you are eligible!


Most of you have said that you are interested in saving money on your electric bill and going green. Some of you have switched to Viridian, many of you have not.  All of you raise your hand when I ask if you recycle, most of you agree if you had the ability to make 10 times the carbon impact without it costing you, you would.  I know time gets away from you and you forget.  I get it.  We have invited Reps to help you with the 3 minute process it takes to make the switch on Thursday night – BRING YOUR N-Star or National Grid bills with you.  It costs you nothing, takes 3 minutes, can save you money over time and you choose green.  All who take action will get a special opportunity during our “forced networking” segment.


Thursday, March 20, 2014 – Is fear of making an offer holding you back?

***Special opportuniy to for MEMBERS of Boston AREIA, we are shaking up our forced networking section…those who get there early will be rewarded!

Monthly Meeting – The question I get most from investors is, “Ok…so, I find a property…how do I make sure all the bases are covering when making an offer and putting together a P&S?” Well this meeting will dispel the fears that are holding you back from making offers!   For all details visit –

Become a member today –