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Real Estate Agents: Grow Your Business with a Self-Directed IRA

grow your business with a self-directed ira

Real Estate Agents and the Self-Directed IRA

Did you know, as a real estate agent, you can grow your business with a Self-Directed IRA? These days, as more investors become familiar with alternative asset investments, like real estate, they look for real estate agents who are knowledgeable within the self-directed industry. Real estate agents have a great opportunity to use a Self-Directed IRA to grow their business, as real estate is the most popular alternative asset among investors.

You can help your clients, and at the same time grow your business, if you are experienced within the self-directed retirement industry. If you don’t know where to start, this article is a good place.

Key Points
  • As a real estate agent, you already have knowledge about the most popular alternative asset investment
  • Familiarizing yourself with the Real Estate IRA is a great way to grow your business
  • It’s important to know the rules before investing, specifically prohibited transactions and UBIT

Start Reading

Your first step is to dive into as much literature on the Self-Directed IRA that you can get your hands on. There is plenty of free information in the form of articles and videos online. If you want to go the extra mile, buy a few books. IRA Financial founder, Adam Bergman, is a leading voice in the self-directed retirement industry and has written several books on the Self-Directed IRA including:

  1. Self-Directed IRA in a Nutshell
  2. The Checkbook IRA: Why You Want it, Why You Need it

These two books are great for beginners.

You can also review the IRA Financial podcast and YouTube channel and browse the topics you are interested; there’s plenty of info about real estate investing and other areas, along with all the rules associated with self-directing. With this knowledge, you can help your clients make the best real estate investment decision.

IRS Rules for Self-Directed IRAs

This is very important, as it can help you determine whether your client can make the investment or not. The IRS has prohibited transactions, which include investments people cannot make with their IRA, such as life insurance. Don’t worry, real estate is not one of those investments.

However, you should concern yourself with “disqualified persons.” In general, a disqualified person is anyone up and down the client’s family line, such as their parents and their children. A disqualified person also includes your client’s spouse. Your client cannot engage in any transaction with a disqualified person. If he or she is trying to do so, the investment should not be made.

Refer a Passive Custodian

If you mention the benefits of making real estate investments with a Self-Directed IRA to your client, and they choose to establish a plan for themselves, you can recommend the right Self-Directed IRA custodian for them to choose.

Don’t recommend that they go to a bank or financial institution. Although these organizations claim to offer Self-Directed IRAs, they limit their clients to invest in assets only they sell. This typically includes stocks, bonds, mutual funds, ETFs and other traditional assets. They will not give the client access to other investment opportunities, such as real estate. And they’re perfectly within their rights to do so.

If your client asks for a referral, simply tell them to choose a passive custodian, like IRA Financial Trust. Passive custodians do not sell financial products or provide financial advice. They’re only in the business of providing self-directed retirement plans. As a result, a Self-Directed IRA from a passive custodian will give your client the freedom to make virtually any investment they wish, like real estate.

Custodian Control vs Checkbook Control

Even though you are a real estate agent, not a financial advisor, it could benefit you to know the difference between a Self-Directed IRA with custodian control and one with checkbook control.

A custodian controlled Self-Directed IRA requires custodian consent, which typically has long delays. Sometimes, investors can miss out on an investment opportunity because the transaction must first be approved by a custodian. A Self-Directed IRA with custodian control is generally best for investments that have a low volume of transactions.

The other option is a Self-Directed IRA with checkbook control. Investors have more freedom to invest because custodian consent is no longer necessary. As a result, they can make an investment right on the spot. They do have to pay for the LLC (limited liability company), but many real estate investors do prefer this route. Furthermore, if the investment has a high volume of transactions, checkbook control is the preferable route.

When you know the different types of Self-Directed IRAs, you can help your client make savvier real estate purchases. If they plan to purchase a property to flip it and rent it out, you may suggest that they switch to a checkbook control solution, or suggest property, like a piece of land, that requires minimum transactions. In the end, this will help your client save money.

Unrelated Business Income Tax (UBIT)

There is a tax called the Unrelated Business Income Tax (UBIT) which very few investors know of because it rarely gets triggered. However, there are three ways that UBIT tax can be triggered, one of which applies to real estate investments.

If your client is interested in a piece of property but does not have sufficient funds to make the purchase, he or she can use a nonrecourse loan. Not only should you inform your client about UBIT if he/she is not familiar with the term; but you should also advise your client to use as much of his/her retirement funds to purchase the property, as the debt-financed portion will be subject to the UBIT tax. This tax can be as high as 37%.

All income and gains generated by the property will be subject to tax. An easy an example is purchasing a property 50% with retirement funds and 50% with borrowed funds, or leverage. If you sell that property for a $100,000, then $50,000 of the gains would be taxable. Same goes for rental income – half of the income generated each month would be taxable.

Key Takeaways

Self-Directed IRAs will allow you to grow your business, so it helps to be knowledgeable about the self-directed retirement industry. You don’t need to know everything about the self-directed retirement industry, just the important facts that will help your business flourish and can educate your clients in their investments. A little research on your part will point you in the right direction and will make a positive impact on your business.


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