OT Self-Directed Retirement Plans
I realize that this is slightly off topic from the intent of this forum. This is not a technical question. I don’t profess to be qualified to answer this question (I still have an opinion), so I will ask it here.
Are self-directed retirement plans really a good idea for most people?
It seems to me, that except in a very few rare instances, these are recipes for disaster. Most people are far better off with a well diversified portfolio. I am going to make a blanket statement (with no real proof, just gut feeling). 80% of people who choose this path will make less than market returns. A significant minority will have catestrophic losses.
Everybody is entitled to choose whatever investment options are approved, that doesn’t make it wise. I realize that this is not a forum for investment issues. However, I have seen several posts from people trying to clean up messes from self-directed real estates deals.
What have the professionals seen the results to be for their clients who embarked down this path.
Permalink Submitted by Alan Spross on Tue, 2008-02-19 19:05
Discounting technical violations such as prohibited transactions and focusing only on investment returns, you are probably on the verge of more of these plans having problems as a result of the RE marketplace.
As you know we had a major bear market in equities just 5 years ago, while real estate continued to boom until about a year ago. Recent history of real estate investments has probably been positive, but that could be about to change, and in some cases could trigger prohibited transactions or early distributions as a consequence. I don’t work with these plans, so perhaps self directed investors who have had recent problems or may be about to could add some insight here.
Permalink Submitted by Al Fry on Tue, 2008-02-19 19:07
As an outside observer, I think on the average, they fair about as well as the market. Some do really well, some very poorly. Some get caught up in low returns with huge fees, some with prohibited transaction consequences. Others are well managed and do well. I’d say they are not for the average investor who is happy with safe, well managed reasonable returns.
Permalink Submitted by Daniel Liddle on Tue, 2008-02-19 23:38
There’s a touch of irony here. Many of those ill informed “professionals” tell their clients that they can’t buy property or mortgages in their IRA. My cousin had about $120,000 in 2000 in his “well managed” IRA that fell to about $60,000 in 2002!! I don’t think he’s back to square one yet. If anyone is thinking about real estate in their IRA I would strongly recommend they understand the business. I would love to see more people on here who have actually done some deals. I have been getting 22% return for 15 years. I am not a genius and will have some losers in the portfolio but I can live with that. It burns me when “well managed” mutual fund managers get paid whether they make money or lose money. Many of these aggresive mutual funds get paid 1.5-2.5% per year even if they lose money. Where do these stories come out about high fees in self directed IRAs. My fees are less than 1% per year. Everyone loves to tell of a good deal. My very first mortgage purchase in my IRA might be my best??? there’s always hope I can beat it later. I could not figure out why a bank would let a property go to a tax sale. I paid $4500 for this mortgage-then we had to pay the back taxes of about $3500 plus title work and attorney fess for a grand total of about $9000. Next I contacted the estranged couple to see if they would deed the property over to FISERV. They said they would. I was excited-but after 2-3 months went by it was apparent they were not going to deed it over. About three months later my attorney received a call from the estranged couple’s attorney who wanted to know the payoff-they were selling the house and needed to pay off FISERV-just under $36,000. $9,000 to $36,000 in six months. If they could all be this easy!!!!
Permalink Submitted by Jim MacArthur on Thu, 2008-02-28 21:40
I have had very good fortune investing Self Directed IRA funds in real estate notes and Trust Deeds and have outperformed the market quite well. I much prefer real estate notes for IRAs vs Real Estate itself. I would recommend very safe, low LTV 1st position notes. Whatever you buy with your SDIRA it should be your best & safest deals, and you should understand the investment well.
http://www.TheHardMoneyPros.com
[/url]