Is retirement capital the wrong money for real estate in the first place

I went through this twice before replying. When you say you can't guarantee a loan, do you mean the IRA can't borrow at all, or that it can borrow only if you're not on the hook personally? Those seem like very different constraints and I can't tell which one you hit.

@juniper the second one. The IRA can borrow, the loan has to be non-recourse so nobody's personal credit backs it, and the borrowed share of the income picks up the tax. In rural markets where I look, non-recourse lenders for small dollar amounts are thin on the ground, which makes @pike's unlevered constraint less of a choice and more of a fact.

For someone doing fast deals with thin margins, retirement money is the worst possible fit. I need to swing a hammer, sign personally, and move cash between deals in a week. Every one of those is off the table inside the account. I'd rather pay the tax and keep the tools.

@flint is describing a different job than the one the account is for. The account isn't a place to be an operator. It's a place to be a lender to operators, and lending is the piece where the tax treatment is cleanest. If your only skill is operating, then yes, the wrapper is dead weight. If you can underwrite a borrower, it isn't.

What @fathom said reframes it for me. The question isn't whether retirement capital belongs in real estate. It's whether you have a passive skill or only an active one.

I'd separate the decades-of-lockup complaint from the rest. That constraint exists whether the money sits in index funds or in notes. It isn't a cost of self-directing, it's a cost of it being retirement money, and it was already true before you opened the account.

@anchor is right and it changes the comparison. The real question is index funds versus private paper inside the same locked box. On that comparison the private side gives up daily liquidity and a known price, and it gets you an asset you can actually diligence yourself. I've taken that trade. It requires that your diligence is worth something.

Put numbers on the leverage objection. If a deal is 55 percent levered, the borrowed share of the income carries the tax, so you're paying a high rate on roughly half the return and filing costs on top. Whether that still beats the taxable alternative depends on your own bracket and holding period, and only your CPA can run your version. What I'll say is that the answer flipped for me when I stopped comparing to the deal's gross return and started comparing to my own after-tax outside return.

So the version of this I can follow is: lend inside, own outside. Is that too simple?

@vellum it's roughly the shape most people in this room seem to land on, with the caveat that unlevered equity works inside too. It's leverage and active operations that pull the tax in.

@pike your last paragraph assumes index funds are the alternative and that's the part I'd challenge. The alternative for a lot of people is a target date fund they never look at. Compared to that, a note book you underwrote yourself isn't obviously worse. Compared to a disciplined public portfolio it's a closer call.

The compliance burden deserves a line here because everyone treats it as an afterthought. Every dollar in and out has to be documented as the account's, the paperwork has to be signed in the right capacity, and one wrong card swipe takes real money and real time to unwind. That's an ongoing operational job, not a setup cost. If you won't do that job carefully every month, the wrapper is a liability regardless of the tax math.