"Buying Foreclosures in self directed IRA ?"
Original Email Daquinpost received on
Tue, 17 Dec 2002 11:06:13pm
To Derrick Ali
Subject Buying Foreclosures in self directed IRA
"Hey Derrick, I am novice investor ,I would like to buy old houses fix them myself and resell them back to my IRA. also buy foreclosures at auction.
IRS says I can not profit from IRA,but is it not possible for llc to buy
realestate?"
I would like to be paid for my work on house, then put profits back into IRA . Is this possible??
please write"
daquinpost
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MY RESPONSE
Daquin:
Not giving you legal advice...Yes you can profit!
The IRA is totally YOU...there is NO denying this. However, the LLC can be owned by a Land Trust whose beneficiary(s) are either un-Named and or not related to you.
Check with your CPA Tax Professional and/or an Attorney familiar with Incorporating, IRC Statues and 'ARMS-LENGTH' Business Transactions.
Personally I set up all of my own business transactions for earning a PROFIT on every BONAFIDE SERVICE that I PERFORM for Myself Directly or In-Directly!
And That's Why I Am In BUSINESS for MYSELF!'
Let me know how it goes with your research! I'll be posting this on TCI!
Much Success,
DERRICK ALI
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VERN:
Just be sure to FIRST consult with your Legal and/or Tax Professional...
Also, there maybe some STATE SPECIFIC Guidelines(License issues/Bonding etc.???) your arrangement could fall under.
(BE SURE TO INQUIRE)
And FINALLY: You should have a Property Mgmt. Agreement made out between yourself(or Entity's Name that holds title to the property) and the LLC/S-Corp. etc.
You will have to pay taxes on the income your LLC/S-Corp earns, but this is very simple to LEGALLY offset through ITEMIZED DEDUCTIONS on your 1040!
Much Success!
Derrick Ali
Your personal shares or interest in either the property or the corps are mutally exclusive (separate entities
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Vern,
If you get a chance check out MiD ohio securities. I know of away of doing it but it would invlove a financial friend that you would need to know.
Derrick,
Check out legrands page he had something similar on this using mid ohio. (basics) tie it up with with IRA money even if it is only $10, fix, resell and profits stay in IRA. it was titled something like how to invest $1,000,000 in 1 yr into your IRA..???
hope it helps
-Tony-
It's So WONDERFUL to be around such RESOURCEFUL, WELL READ and INTELLIGENT People!
Oh by the way the above is My Own Definition of Creative RE Investors!
Thanks for the Info!
DERRICK
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I have been researching this topic myself. My current understanding is that if YOU buy the real estate, fix it up, and sell it to your IRA you would be violating the self dealing rules.
And as much as I don't like it I can see why that is prohibited. If you sell Real Estate to your IRA then the definition of a fair profit would be totally up to you and would certainly invite abuse.
I am still researching this but I think the key is having your IRA buy the property in the first place and you and your IRA could buy it jointly each with a certain % interest and then split the gain on the sale or rental income. That way you get "your" share of the profit.
However, I would never want to buy real estate directly like that for liability reasons and would not want to expose my IRA to anything like that either. So Ideally I would want to set up an LLC ahead of time with both myself and my IRA each owning a share and then take title in the LLC. Do your fix and then sell it and distribute the profits accordingly.
What I still am unclear about is how to work financing into the picture. Can I have the LLC get a mortgage on the property? If I have to sign a personal guarentee does that affect the transaction with the IRA, etc?
This area is certainly a little complex and ambiguous but certainly is worth the research.
whitestar,
You are misunderstanding how the self-directed IRA works. You are not selling real estate to your IRA. With a self-directed IRA, you control how your money is spent. If you choose to buy real estate with money in your IRA, then any profits you make from that particular real estate has to be put back into your IRA.
With a regular IRA, you choose what stocks you want to invest your money into. If your stocks go up and make money, then the proceeds go back into your IRA. It's the same as the self-directed IRA, except you get to control how you invest your IRA money.
Tanya
Whitestar,
I agree with you. If you were to sell Real Estate to your own IRA that would be self dealing and a prohibited transaction. I think the others are not explaining their intentions clearly. It would also be self dealing to live in a home owned by your IRA.
Let us know what you find out about the loan for the LLC (and any guarantees) and what affect it will have on the IRA if any assuming it owned the llc too. If this could be done it seams like a good way to get some good leverage in your IRA.
-Adam
I have been reading this discussion with interest. As I understand what you are saying is that if I want to buy a property using my self directed IRA, and use sweat equity to improve the value of that property, the way to do that is to set up a LLC that has its organizers myself and my self-directed IRA. Are there any requirements about what percentage of interest I can have versus my self-directed IRA?
Second senario, if I were to use that LLC to buy an office building, could I have an S Corporation that I am the sole shareholder in rent from the LLC? Or is that pushing the self-dealing envelope?