REAL ESTATE TRANSACTION GUIDE - Residential Rental Multi-Unit Fix and Flip Develop/Redevelop - New Direction IRA
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REAL ESTATE
TRANSACTION
GUIDE
Residential Rental
Multi-Unit
Fix and Flip
Develop/Redevelop
New Direction Trust Company: Undeveloped Land
• Real Estate Expertise Since 2003
• Industry Leader in Online Account
Access
• A+ Rating with the Better Business Agricultural Rental
Bureau
• Dedicated Client Relations Team
• Free Education Opportunities
• FDIC Insurance on Uninvested Cash
NEW DIRECTION TRUST COMPANY
ndtco.com | 877.742.1270 | info@ndtco.comTable of Contents
BEFORE YOU INVEST
Important Considerations 3
Open and Fund Your Account 3
Find an Investment 3
Investment Timeline 4
Purchase Structures 4
Disqualified Persons and Prohibited Transactions 5
Perform Due Diligence 5
INVESTMENT PROCESS
Make an Offer 6
How to Correctly Title Your IRA Investment 6
Escrow (Earnest) Money 7
Disclosures and Amendments 7
Closing Procedure 7
AFTER THE PURCHASE
Avoiding Prohibited Transactions After the Purchase 8
Insurance 8
Property Income 8
Managing Property Expenses 9
Unrelated Debt-Financed Income (UBFI/UBIT) 10
Selling Your IRA-Owned Property 10
Please note: All blue links provided throughout the guide direct you to the secure New
Direction Trust Company (NDTCO) DocuSign forms. This guide is best viewed online.
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.2Before You Invest
We are here to assist you every step of the way to make the process easier and minimize
possible delays. Please become familiar with the information provided in this guide and
follow the required procedures.
As the IRA holder, you are responsible for performing due diligence on all investments. Neither
the IRS nor NDTCO researches nor endorses the investments you select. Visit our website for more
information on due diligence and ways to protect yourself from investment scams. A competent
professional in the legal, financial advice, or accounting field can also be consulted if you need
additional help deciding if the investment being considered is legitimate, meets your risk tolerance,
and is appropriate for your retirement goals.
Important Considerations:
While IRAs are flexible investment vehicles, they must follow specific rules outlined in the tax code.
Accordingly, we understand you may have some questions, so please don’t hesitate to call our
office. Please remember:
1. You and your IRA are not the same. Your IRA is a separate legal and financial entity from
you. It even has a different name.
2. You may not pay any of the IRA’s expenses. The IRS considers this a prohibited
transaction. The IRA cannot reimburse you. Any expense of the IRA that you pay
becomes a taxable and penalized distribution from the plan. This includes earnest
money.
3. Unrelated Business Income Tax (UBIT) may be due on profits made as a result of using
leverage (borrowed money). It is your responsibility to calculate, report, and have your
IRA pay this tax. Your CPA or tax preparer may be able to help with the calculation. Our
sister company, IRA Tax Services, can assist as well. Visit irataxservices.com for more
information on UBIT.
4. Any violation of IRS rules that result in a Prohibited Transaction will result in a
distribution of the account dating back to when the prohibited transaction occurred as
well as payment of back taxes, interest and penalties.
Open and Fund Your Account:
1. You must open an account before you can start the investment process. You can
establish your account online via our website at: ndtco.com.
2. Fund your account with a transfer, rollover, and/or contribution.
Please Note: Correct paperwork must accompany all incoming funds (e.g. Transfer/Rollover Form
for transfers or rollovers, Deposit Coupon for contributions)
Find an Investment:
You are ready to self-direct once your IRA has been opened and funded. There are no restrictions
on the price and/or market value of the property, or the type of real estate purchased. In fact, there
are several types of real estate an IRA can purchase:
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.3• Single Family Homes • Commercial Properties
• Multi-Unit Homes • Rental Properties
• Apartment Buildings • Fix & Flips
• Condominiums • Improved or Unimproved Land
• CO-Ops • Property Held Only for Appreciation
Investment Timeline:
Open Account Fund the Find Real Estate Perform Due Make an Earnest Investment
Online Account Investment Diligence Offer Money Closing
1 business day 1-4 weeks timeline varies timeline varies 1-2 days 2 business days 3 business days
Purchase Structures:
100% Cash - An easy way to purchase real estate for your IRA is using cash from your plan. In this
case, the IRA owns 100% of the property, receives 100% of the rental income, and pays 100% of
the expenses the property incurs.
Partnering - Your IRA may partner as tenants-in-common with another person, entity, or IRA. In
partnering, your IRA would own a percentage of the property, and the remaining portion would be
owned by someone else. You may partner your IRA with personal funds and/or disqualified
persons.
*Special treatment for all income and expenses is required when your IRA partners with your
personal funds or those of any other disqualified person to purchase property. Bills must be paid
with checks from each partner in proportional amounts, and renters must write checks to each
partner.
Debt Leverage - The IRA may use leverage (a loan) to purchase property. The loan must be
non-recourse, meaning that neither you nor any disqualified person can guarantee the loan, nor
pledge your personal assets and/or credit. The only security on the loan is the property itself. Non-
recourse loans are typically made on income-producing properties, and lenders frequently require
35% or more down.
Net profits from the leveraged portion of the investment may be subject to Unrelated Business
Income Tax (UBIT). Please refer to our report on UBIT for more information. Your loan is a separate
asset from the property itself and will carry its own set of fees.
Using an LLC - You may use an LLC as part of your IRA purchase strategy, but it is not required. In
this scenario, the LLC is the titleholder of the property. It is the IRA holder’s responsibility to
ensure that the appointed LLC manager is familiar with Internal Revenue Code section 4975, form
5305, the Plan Agreement and Disclosure, and has competent legal advisors. It is the LLC
manager’s responsibility to avoid prohibited transactions which, if violated, can result in the
distribution of the IRA plus other penalties.
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.4Disqualified Persons:
grandparents
parents
IRA
spouse
Holder
son spouse spouse daughter
spouse grandson granddaughter spouse spouse grandson granddaughter spouse
Disqualified Persons also Include:
• Certain Fiduciaries (CPAs, Attorneys, Financial Planners)
• Retirement Plans held by a disqualified persons
• Entities owned or controlled by disqualified persons
Prohibited Transactions:
Prohibited Transactions are activities that a disqualified person or entity cannot have with an IRA.
These activities are defined by IRC, Section 4975. Examples of some of these transactions
include:
• Buying a property/asset from the plan
• Selling a property/asset that you already own to the plan
• Living in the property/ Using the property personally as a vacation home or for any
other reason
• Renting the property (even if paying fair market rent)
• Paying expenses for the property with personal funds
• Getting paid by the IRA (for realtors, this includes taking a commission on the purchase
or sale of a property)
• Putting sweat equity into the property (the IRA directly or indirectly benefits OR is
benefited by a disqualified person
• Use of your IRA’s assets as collateral for a personal loan
If you have questions regarding prohibited transactions or would like to run a scenario by one of
our client relations specialists, please call our office. Our staff is familiar with IRC Section 4975 and
will be happy to share that information upon request. Please note that you can be penalized by the
IRS or required to do a full distribution if a prohibited transaction is discovered in your account.
Due Diligence on Property:
NDTCO offers an online webinar that can be a useful starting point for the research process,
available here. Simply select the option “Tips for Addressing Your Investment Fears.” A competent
professional in the legal, financial planning, or accounting fields can also assist in determining if
the investment would be permitted and appropriate for your investment objectives.
Please note that all expenses from the due diligence process (e.g. inspection costs) are to be paid
either by inclusion on the settlement sheet or by instructing us to pay directly from your account.
This also includes finance-related expenses.
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.5Investment Process
Make an Offer:
Offers must use the IRA titling below to indicate the buyer. DO NOT put the contract in your
personal name. If an offer/contract has been made in your personal name, the purchase process
must be restarted, including a new offer/contract. Purchase contracts in the name of disqualified
persons cannot be assigned to the IRA via an assignment, amendment, etc. Do not pay the
earnest money personally.
Please note: there is a 1 business day turnaround for offer paperwork received. NDTCO permits
you, the IRA owner, to sign for the Buyer on real estate contracts, counter-offers, addenda,
disclosures, and other miscellaneous documents prior to closing documents. Once you have a
fully signed contract please send it to NDTCO and complete a Real Estate Buy Direction Letter.
NOTE: Please check with us if you are purchasing a HUD property.
How to Correctly Title Your IRA Investment:
When investing with your retirement account, all paperwork for that investment must indicate the
IRA as the buyer and NOT the IRA holder (you).
Please complete all investment documents using the following guidelines:
BUYER/OWNER NAME BUYER’S ADDRESS
NDTCO, trustee, FBO John A. Smith IRA New Direction Trust Company
1070 W. Century Dr.
* This titling also appears at the top of the Real Estate Louisville, CO 80027
Buy Direction Letter.
DO NOT SIGN ON THE INVESTOR’S / BUYER’S SIGNATURE LINE. ON CLOSING
DOCUMENTS OR INSURANCE POLICIES.
You, as the IRA holder, are NOT an authorized signer for the IRA. Only authorized signers of New
Direction Trust Company can sign for insurance documents and closing documents. Any page
that needs to be signed is signed by you, IN THE MARGINS, as having been “read and approved,”
and then NDTCO signs on behalf of your IRA. The initial offer (as described above) can be signed
by the account holder.
Titling for Partnerships:
If you partner your IRA with a disqualified person or with another IRA, you must establish the
percentage of ownership at the beginning of the investment. Those percentages will be used to
divide up the incoming revenue and pay all expenses, including earnest money. The vesting would
be shown as follows, assuming a 50/50 split:
NDTCO, trustee, FBO John A. Smith IRA, as to an undivided 50% interest, and John A. Smith, as to
an undivided 50% interest.
NDTCO, trustee, FBO John A. Smith IRA, as to an undivided 50% interest, and NDTCO, trustee,
FBO Joseph B. Smith IRA, as to an undivided 50% interest.
Titling for Inherited IRA Accounts: NDTCO, trustee, FBO John A. Smith, Bene - Joseph B. Smith,
Dcdt IRA
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.6Escrow (earnest) Deposit Money:
Once we have received a correctly titled contract and a completed Real Estate Buy Direction Letter,
NDTCO will issue earnest money, also referred to as a down payment or deposit. Completed
paperwork is subject to a 3 business day review period once NDTCO receives it.
For those who need earnest money sooner, with the actual offer, there are several options:
1. You may have the broker issue an earnest money promissory note.
2. If the seller agrees, you may write out a check and send them a copy, but you must NOT
send them the check.
3. You may have a non-disqualified person pay it and your IRA can reimburse them later.
Reimbursements made to third parties will require additional documentation for
verification of the payment. The assigned specialist will provide additional information
when needed.
Disclosures and Amendments:
Clients may sign all the amendments and disclosures through the purchase process for the IRA.
Copies of all signed documents for the transaction should be submitted to NDTCO, who will sign on
behalf of the IRA at closing. It is the client’s responsibility to inform the title company of this.
Closing Procedure:
The IRS has strict guidelines governing real estate transactions, and it is the custodian’s job to
make sure that these rules are observed. To satisfy this requirement, NDTCO will need:
1. A completed Real Estate Buy Direction Letter
2. Complete/correct closing documents signed as “Read and Approved”
3. Proposed Deed
4. Wire Instructions
5. Title Commitment
6. If leveraged, loan documents signed as “Read and Approved”
Sign the closing documents as follows:
1. Write “Read and Approved” and sign your name IN THE MARGINS on pages requiring a
buyer’s signature. (Do NOT sign on the buyer’s signature line.) If Title provides a “Read
and Approved” signature line, you should sign there instead of in the margins.
2. All other pages, write “R & A” and initial.
NOTE: We do NOT attend closing. Please check with us if you are purchasing a HUD property.
*Please note: if the page requires NDTCO to sign, the IRA holder should sign, while all other pages
should be initialed. Pages should match; signature with signature, initials everywhere else.
In order to ensure a smooth closing and timely funding, ALL complete and correct documents
must be signed as “read and approved” at least 3 full business days prior to closing date. Forms
received after 12:00pm Mountain Time will be considered as having arrived next business day. If
we receive your closing package late, or if you send in the package without having talked with us
first and want it funded in less than 3 business days, a $500 rush fee will apply.
Once we receive the paperwork we will review, sign and send documents overnight (with tracking)
to the closing. We will also prepare and process the funding so funds arrive at the title company on
the day of closing. We DO NOT attend closing. After closing, please ask your title company to email
a complete set of fully executed documents to us.
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.7After the Purchase After the Closing: Congratulations. You have now joined the ranks of thousands of investors who have taken more control over their retirement savings. In order to protect your retirement account’s tax privileged status, here are some guidelines for managing the new property. Insurance: Insurance should be in the name of the IRA. Your insurance company must understand that, in the event of a claim, the check must not be made out to you personally, but must be made out to the IRA and mailed to New Direction Trust Company for deposit. If hazard insurance is purchased, the IRA must be named as the insured or shown as 1st (2nd) mortgage or loss payee. You must provide NDTCO with an insurance binder showing the IRA as the insured. The address shown for the insured is NDTCO’s address. DO NOT PAY the insurance bill with personal funds. Property Income: Please remember that the correct NDTCO form must accompany any incoming funds from your IRA real estate investment (i.e. a Deposit Coupon for rent checks). Instruct your renters (unless a property manager is depositing these checks to their trust account) to make their rent checks payable to your IRA as follows: NDTCO, trustee, FBO Client Name IRA. All income from the property belongs to your IRA. We cannot deposit any income checks into your IRA account that are made payable to you personally. Any such checks will be returned to the renter with correct payee instructions. Your renters can pay your IRA online via ACH at portal.ndtco.com. Managing Property Expenses: Please remember bills are sent to NDTCO and then forwarded to you via email. A $10 forwarded mail fee will be charged for mail forwarded regardless if paid online. All expenses for the property are the IRA’s responsibility. Never pay any bills with personal funds; such payments are considered an excess contribution to their retirement account, subject to penalty by the IRS. You have three ways to manage expenses generated by your investment in Real Estate. Option 1: Expenses Paid Using Online Client Portal [FREE] Use the 24/7 bill pay feature on your client portal to execute payment. You may also set up monthly Autopay for HOA or mortgage payments via the website. It is a good idea to keep records for property expenses in your personal files. All bills (with some exceptions) should be in the name of the IRA but sent to you, using the c/o (care of) option and your home address. Visit our home page and click on login button and follow the instructions provided on the site. NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.8
Option 2: Expenses Paid Using Payment Authorization Letter
• Payment Authorization Letter - One-Time Payments: use this form to request a one-
time payment. You can include a copy of the invoice to mail with your payment request.
• Payment Authorization Letter - Autopay Payments: This is to set up an HOA and
Mortgage Payment only.
*Payment Authorization Letter and Movement of funds fees are applicable. See fee schedule.
Option 3: Property Managers
• The property manager must understand that your IRA owns the property, even though
you will be making all the decisions about it.
• Choose a property manager that is not a disqualified person or entity.
• The property management agreement must be in the name of the IRA and signed by
NDTCO on behalf of your IRA. We must have a copy of this agreement on file, along with
the manager’s contact information. You will need to create a new signature line and sign
the management agreement as “read and approved” before we can sign on behalf of the
IRA as “property owner” or “landlord.”
• The property management agreement must be signed by New Direction Trust Company
on behalf of your IRA.
• The property manager must provide New Direction Trust Company an accounting of the
income and expenses on a quarterly basis.
• Any excess cash should be sent from the property manager back to the IRA.
Review the following list for the types of expenses that your IRA may need to pay. (The list does not
include all expenses you may incur.)
Recurring Bills:
• Mortgage Payments
• HOA Dues
• Property Taxes
• Insurance
• Utilities
Repairs & Improvements:
• Remodeling
• Repairs
• Appliances and/or Furnishings
• Cleaning and/or Lawn Care
Unrelated Debt-Financed Income (UDFI/UBIT):
If there is a mortgage on the property—regardless of whether the property is owned directly by
your IRA, or by a legal entity owned by your IRA—you may incur Unrelated Business Income Tax.
IRS Form 990-T is used to calculate UBIT for your IRA. See here for more information on UDFI/
UBIT.
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.9Selling Your IRA-Owned Property:
1. You choose a broker and he/she prepares a listing contract. You can sign the listing
agreement and disclosures for the Seller. Send us a copy after you’ve signed.
2. You negotiate the terms with your broker. When an arrangement is met, accept the offer
to sell. Sign the offer for the Seller and email or fax it to us. Complete the Sell Direction
Letter and email or fax it to us with the accepted contract.
3. Closing is scheduled with the title company. You receive the closing documents from the
title company and review them for accuracy and completeness. You then sign them as
“read and approved” and email or fax them to us. We sign as the seller and email or
overnight the documents to the title company. We also provide them our wiring
instructions with your IRA name and account number indicated. The title company wires
your proceeds back to your IRA account with us.
NEW DIRECTION TRUST COMPANY ndtco.com | 877.742.1270 | info@ndtco.com | p.10You can also read
