Owning a Self directed IRA opens your retirement portfolio beyond the traditional stocks, bonds and CDs into the exiting world of real estate investments in land, residential and commercial properties. The idea is to be able to leverage the funds from your self directed IRA to secure positions in these investments and then earn income by way of rents from tenants while you are holding your positions in them and from capital gains when you sell your positions in these investments.
All income earned must go into your Self Directed IRA directly, since it is your IRA that is making the investment and hence is the payee in all income earned from your investments. Income earned can grow tax free within your self directed IRA. The real property that you invest in cannot be used for your own benefit or the benefit of your immediate family. In other words, you cannot use your IRA funds to purchase property that you want to use as your own residence or the residence of your parents, siblings or children, even if they are paying rent. You and your immediate family are considered non-qualified persons by the IRS when it comes to making real estate investments from your self directed IRA.
Residential properties may be single family homes or multi-family properties which you may procure in the name of your Self Directed IRA and earn the rental income when the rental market is strong. As the economic conditions improve and more and more people become homeowners you may choose to sell your interests in these rental properties, when the capital gains go right back into your self directed IRA. Commercial properties such as office spaces, commercial business may offer more stability in a booming economy and they may be more exciting to invest in from your self directed IRA.
Investments made prudently in real estate as income properties have traditionally yielded higher returns with less volatility than the stock market. With property values dropped below their prime and the rise of foreclosures and short sales, a savvy investor can pick up a nice collection of properties using funds from their Self Directed IRA at prices that are way below the market. Funds from the self directed IRA may also be used to cover the costs of fixing the property up as necessary and then turn around to rent or flip them around them for income into the self directed IRA.
In order to purchase real estate from the funds in your self directed IRA, we recommend that you set up a LLC or a Business Trust that is owned 100% by the self directed IRA, with you are the sole member of the LLC or the trustee of the business trust. This enables you to open a bank account in the name of your LLC or Business Trust which enables the bank to issue a checkbook in the name of your LLC or Business Trust. Once this is all set up, you instruct your IRA custodian (which in this case is Accuplan) to transfer the funds from your self directed IRA into the bank account of your LLC or Business Trust
Your LLC or Business Trust now appears on the deed of the real property that you are purchasing and you as the member or trustee, will write a check to the seller of the property to secure the interests in it. Any property management, maintenance, property taxes and other expenses for the property can be made simply by writing a check from the bank account. In the same manner, all income received from the property comes directly into the bank account.
Essentially the LLC or Business Trust enables you to treat all your real estate investments as a true business with typical P&L statements. All gains go into your IRA tax deferred.