Investing into real estate is one of the most popular non-traditional investments inside of an IRA. Investing in real estate with a self directed IRA is a very great option to diversify your retirement accounts but what are some of the questions that come up when investing in real estate with a self directed IRA? The following are a few of the questions and If you still need more clarification on any of these questions feel free to contact us at any time.
Do I need an LLC or checkbook control to purchase real estate with my IRA?
While you do not need an LLC in order to purchase real estate with your IRA it may be right for you. Either way you can purchase with or without and LLC while using your IRA.
If I don't have all of the capitol in my retirement account to buy the real estate is there anything else I can do?
If you don't have 100% of the capitol in your retirement account you can do a few other things. First, you can partner with another persons IRA or multiple IRAs in order to purchase your real estate. This can be done with your parents, or anyone regardless if they are a related party or not. There are specific rules to this that you need to be aware of and careful of. Contact us to make sure you are aware of some of the potential risks and issues with partnering with your those that are considered related parties.
The other thing that you can do is to get a non-recourse loan. Now finding a bank will allow for this non-recourse loan isn't as hard as you may think. While not every bank allows for non-recourse loans there are some that will give you a non-recourse loan. One of the hardest things about a non-recourse loan is that you have to put down a much higher down payment, usually a minimum of 40% if not more. This has some other rules to be aware of as well when purchasing your real estate this way. If you would like more information please contact us.
What happens if my real estate investment needs repairs?
One thing you need to remember as an owner of real estate inside of your retirement account is that there are a few things called prohibited transactions. You cannot do anything that is considered a prohibited transactions or else your self directed IRA could be voided. If you pay for repairs from your own personal cash while your IRA owns 100% of the real estate then you are doing a prohibited transaction. To briefly explain how it works without being a prohibited transaction is whatever percent ownership is owned by each IRA or person that IRA or person has to pay that percent of all the expenses and that person received that percent of all the profits. For example, if a real estate property is owned by 30% of person A's IRA, 30 % of person B's IRA and 40% of person C's own money then Persons A and B's IRAs will receive each 30% of all bills and 30% of all profits. All while Person C will be on the hook for 40% of all bills while also receiving 40% of all profits.
While these are just a couple of some of the more popular questions people have when investing in real estate with their IRA there are many others that you should be aware of. Look for our part two post on FAQ's to owning rel estate inside an IRA.
If you have any questions about some of the content that was mentioned and want further clarification, as always, contact us as we are your self directed IRA real estate experts.
Author: Nick Barker