What is a Real Estate IRA LLC?
A Real Estate IRA LLC is generally also known as a Self Directed IRA LLC with “Checkbook Control”. A Real Estate IRA LLC or Self-Directed IRA LLC with “Checkbook Control” plan is an IRS and tax court approved structure. This structure allows you to use your IRA funds to purchase real estate or make almost any other type of investment tax- free!
With a Real Estate IRA LLC you never have to seek the consent of a custodian to make a real estate investment or be subject to excessive custodian account fees due to account value and per transaction.
To establish a Real Estate IRA LLC with “Checkbook Control” structure, the IRA first establishes and owns a limited liability company (“LLC”). The IRA account owner (you) manages the LLC. A passive custodian then transfers the IRA owner’s funds to the new IRA LLC bank account.
As the manager of the IRA LLC, YOU have the authority to make real estate investment decisions on behalf of the IRA providing the IRA owner with “checkbook control” over his or her IRA funds.
When you find a real estate investment that you want to make with your IRA funds, simply write a check or wire the funds from your Self-Directed IRA LLC bank account. The Self Directed IRA LLC with “checkbook control” allows you to eliminate the delays associated with an IRA custodian. This allows you to act quickly on the best investment opportunities.
“Checkbook Control” is especially important when it comes to making real estate or tax liens investments. As you may know, custodian delays can cause you to lose an investment opportunity.
Real Estate is an IRS Approved Investment
The IRS always permits real estate to go inside IRA retirement accounts. Investments with a Real Estate IRA are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment. However, this typically excludes any investment involving a disqualified person.
Types of Real Estate Investments That You Can Make Using a Self-Directed IRA LLC
With a Self-Directed IRA LLC with “checkbook control,” you have the ability to invest in almost any type of real estate investment. Below is a partial list of allowable real estate investments:
- Residential or commercial real estate
- Raw land
- Foreclosure property
- Mortgage pools
- Tax liens
- Domestic real estate
- Foreign real estate
- Vacation homes
- Rental units
- Condos or coops
- Farm land
A Real Estate IRA LLC Offers Growth Potential
A Self-Directed Real Estate IRA LLC can offer the opportunity to greatly accelerate growth in your retirement portfolio. With a Real Estate IRA LLC you can take advantage of the high growth real estate investment sector. Furthermore, you can benefit from the tax-free IRA advantages.
As an alternative to the stock market, income-producing real estate properties can provide consistent income as well as long-term gains through appreciation. There are no limitations on the types of properties that can go into a Real Estate IRA LLC. A few real estate investment possibilities include:
- Domestic, foreign residential or commercial real estate
- Industrial buildings
- Raw land
- Farm land
You can also invest in real estate related notes, liens & options.
Real Estate IRA in Today’s Market
The residential and commercial real estate market has taken a dramatic downturn. This is primarily due to the subprime mortgage meltdown. While it’s a bad real estate market for current owners and landlords, it’s a great investment market for real estate investors with capital. The Real Estate IRA LLC is perfect for any person looking to diversify their retirement funds by investing in the high growth real estate market.
With a Real Estate IRA LLC, you can act quickly on a great real estate investment opportunity. When you find a real estate investment that you want to make with your IRA funds, as manager, simply write a check or wire the funds straight from your Self Directed IRA LLC bank account. That real estate investment is now yours!
The Self Directed IRA allows you to eliminate the delays from IRA custodians. As a result, you can act fast on any investment opportunity that presents itself.
Use Leverage with your Real Estate IRA LLC
You can utilize the Real Estate IRA LLC when making a real estate investment in cash. Also, you can use for a non-recourse loan to fund an investment. A non-recourse loan is the only type of loan allowable for a Self Directed IRA. A nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral. The borrower is not personally liable. Whereas, a recourse loan is a loan for which the borrower is personally liable.
Recourse loans are no permitted when using IRA funds.
Note – if nonrecourse leverage is used, the debt-financed portion of the investment will likely trigger a tax under the Unrelated Debt Financed Income rules (UDFI).
Gaining “Checkbook Control” is Quick & Easy
The IRA Financial Group will take care of setting up your entire Real estate IRA LLC “Checkbook Control” structure.
Let’s begin today – we can handle the entire process by phone, email, fax, or mail. It typically takes between 7-21 days to complete, however the timing largely depends on the state of formation and the custodian holding your retirement funds. Our in-house tax and ERISA professionals are on site and can greatly reduce the set-up time and cost.
More importantly, each client of the IRA Financial Group receives a tax professional to help with the establishment of the Self-Directed IRA LLC Checkbook Control structure. And our fees are lower than companies that perform similar or the same services.
The Real Estate IRA LLC “Checkbook Control” Process
Let’s take a look at the process in four easy steps.
First: A Self-Directed IRA account is established with an IRS approved and FDIC backed passive custodian.
Second: Retirement funds are transferred to the new Self-Directed IRA account tax-free!
Third: A Limited Liability Company (LLC) is formed with the IRA account owner designated as Manager and the IRA as owner (member) of the LLC.
Fourth: At the direction of the IRA owner, the passive custodian invests the IRA funds into the new IRA LLC. There can be one or more IRAs to fund the IRA, including Traditional, Roth, and SEP IRAs.
STEP 5: The Manager of the new IRA LLC (the IRA owner) directs all, or a portion, of the IRA funds held in the new LLC bank account for investment.
STEP 6: The LLC makes a real estate investment using IRA funds and all income and gains generally flow back to the LLC tax-free!
Did you know?
You can use leverage for a Self-Directed IRA real estate transaction, but you cannot personally guarantee the loan.