What is a Real Estate IRA LLC?
A Real Estate IRA LLC is 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.
What are the Benefits of a Real Estate IRA LLC?
When you establish a Real Estate IRA LLC, you no longer need custodian consent to make real estate investments with your IRA. There is a “passive custodian”, which offers no financial advice. As a result, you no longer have to pay excessive custodian fees for transactions.
A Real Estate IRA LLC gives you complete control over the investments you wish to make, and the funds within your IRA. Because you have a passive custodian that offers no advice, you have more responsibility. So, it’s more crucial than ever to thoroughly research investment opportunities and understand them completely before you make an investment.
How to Establish a Real IRA LLC with Checkbook Control
Only certain custodians will allow you to invest in real estate. Therefore, in order to make real estate investments, the best option is to find a Self-Directed IRA custodian that can legally hold your assets, like IRA Financial Trust.
From there, you can establish a Real Estate IRA LLC with “Checkbook Control” structure. Let’s take a look at the process.
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 of 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 such an investment opportunity.
Real Estate is an IRS Approved Investment
The IRS has always allowed an IRA to hold real estate. 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 investments that involve disqualified persons.
Types of Real Estate Investments That You Can Make Using a Self-Directed IRA LLC
A Self-Directed IRA LLC with “checkbook control” allows you 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
Real Estate Investing 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 and 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.
Use Leverage with your Real Estate IRA LLC (Non-recourse loan)
You can utilize the Real Estate IRA LLC when making a real estate investment in cash. Additionally, you can use 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 non-recourse loan is a secure 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.
When using IRA funds, you cannot use recourse loans.
Note – if you use non-recourse leverage, 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
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.
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!
Get in Touch
Do you still have questions about the real estate IRA LLC or real estate investing with a Self-Directed IRA that weren’t covered in this article? Contact IRA Financial Group at 800-472-0646. Or fill out the form to speak with an IRA specialist.
Did you know?
You can use leverage for a Self-Directed IRA real estate transaction, but you must be aware of the UBTI rules.