My IRA took back a rehab house and I wasn't allowed to touch it

The part that stops me is that your crew being close by made it worse, not better. You had the one resource the account legally couldn't use. That's a strange kind of trap.

I'm months away from moving anything into one of these so I'm reading this carefully. Question on the reserve: when you say 80 percent of what the IRA could cover, do you mean the IRA should have held enough cash to fund the full 28k rehab, or just enough to carry taxes and insurance until it could sell as-is? Those are very different numbers and I want to know which one you'd size to now. Also, did the custodian charge you anything for handling the foreclosure paperwork? I keep seeing fee schedules with line items for special asset handling and I can't tell if they're 50 dollars or 500.

Two mechanics did the damage.

The first is the disqualified person rule. You and your IRA are treated as separate parties, and providing services to an asset the IRA owns is generally treated as a prohibited transaction, including labor you would have donated for free. Whether a specific act crosses the line turns on facts, so that call belongs with a tax attorney or CPA who works with these accounts. The practical planning point stands regardless: an IRA-owned asset has to be maintained by third parties paid from IRA funds.

The second is liquidity. A lending IRA is underwriting two positions at once, the note and the property behind it. If the note fails, the IRA inherits foreclosure costs, insurance, property taxes, carry, and whatever work is needed to make the asset sellable. All of that has to come from cash inside the account or from a non-recourse loan the IRA takes on. If the IRA borrows, the debt-financed share of income and gain can be subject to UBIT, filed on Form 990-T, and the threshold where that starts is low with trust rates that climb quickly. Confirm current thresholds and rates in writing with your preparer before you assume a number.

On anchor's question, size the reserve to the as-is exit, not the full rehab. The IRA needs enough cash to foreclose, insure, carry, and close a sale in the condition the property arrives in. Funding a full rehab from inside the account is a separate decision with its own bid and its own timeline.

At 62k out and 9k of cash, the reserve was roughly 15 percent of the position. On a rehab loan to a single borrower, that is thin.

The way I'd put it after going through this twice is that the IRA is a person who can only pay people, never do anything itself. That reframing helped more than any of the articles I've read.