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One of the advantages of a Self Directed IRA is that if domiciled with the right IRA Custodian, the IRA can invest in real estate, from speculative land to income properties. This can be facilitated by direct ownership in the real estate, or, indirect ownership in a Limited Partnership, or LLC, that in turn invests in real estate.
Due to the current real estate market, cash purchases, or significant down payments, on direct real estate are possible with an IRA that is in the liquid position to take advantage of this opportunity. The capital appreciation of the real estate compounds tax deferred!
The advantage of self directed IRA real estate investments is that the investor has control. The disadvantage of investing direct in real estate is the management responsibilities and the possibility of Unrelated Business Taxable Income, UBTI, that might be generated from the income from the real estate. The advantage of investing through a Limited Partnership, or LLC, is that the real estate is selected and managed by professional experts. The disadvantage is the lack of control and lack of liquidity.
The most common form of investing with a Self Directed IRA in direct ownership and management of real estate. Due to the non-liquidity nature of this type of investment, an IRA Valuation will be required.
The IRS, Dept. of Labor, and most auditors will only accept Valuations computed, and documented with supporting exhibits, from an independent expert. Valuations from the investor, the investment management, and the investment management's accounting firm, are not acceptable to the above agencies.