IRA Tax Advantages, pg. 18
take a distribution, make improve-
ments to the existing asset, or any
combination. An IRA does not have
to purchase a real estate asset that
produces cash flow. Profit derived
from an IRA selling a property for
more than it originally paid is tax
advantaged, although, in some cir-
cumstances, debt-financed properties
and fix and flips may incur UBIT.
Keep in mind, any expense that is
incurred by the IRA’s asset must be
paid by IRA funds. TIP: Make sure
your IRA provider has a way for
your IRA to pay bills for free. Check
fees add up fast.
set-up is typically side-by-side, undivided
percentage ownership. For instance, if
IRA X owns 65 percent of a property
and IRA Y owns 35 percent, all revenue,
payments, and distributions will be split
according to that percentage. TIP: You
can “partner” with your IRA to purchase
a property using this tenant-in-common
arrangement.
An IRA can buy private equity or shares
of an entity (like an LLC, LP, or C-corp.)
that then goes out and buys the real
estate. Purchasing real estate by
pooling funds from multiple
investors into an entity is a
popular method for IRAs to
invest in larger projects.
In this strategy, the IRA’s
asset is its ownership in
the entity that, in turn, owns
the property. TIP:
Knowing your
options for
pooling
funds is help-
ful for your
IRA planning,
and also if you are
raising money for a deal using other
people’s IRAs.
An IRA can purchase residential or
commercial properties; agricultural
or raw land; and real estate instru-
ments such as options, trust deeds,
tax liens, etc. TIP: Some IRA
providers service all of these assets,
offering maximum flexibility, but
some do not.
An IRA can use the same real estate
strategies that you use outside of
an IRA: buy and hold, fix and flip,
hold for appreciation, buy land and
develop it, and more. Short-sales,
foreclosures, and auctions are all
tools that the IRA can utilize. TIP:
Almost all real estate strategies that
work outside of an IRA can be used
to make money inside an IRA, but it
is a good idea to take time at the in-
ception of a deal to look into relevant
IRS rules.
An IRA can secure a non-recourse loan
to increase its buying power. Individual
IRAs (and in some cases partnerships
and entities) can often arrange for a
nonrecourse loan. Because the loan is not
personally guaranteed by the IRA holder,
the terms reflect the additional risk to the
TIP:
that didn’t have to be contributed to the
account.
An IRA can be a lender. It can make
virtually any kind of loan (bridge loan,
construction loan, hard money, etc.) and
receive the principal and interest pay-
ments. The loan can be secured by collat-
eral or unsecured. TIP: Remember, your
IRA can be the lender (making loans to
create returns for the account) or the bor-
rower. Also, you personally might get
a loan from an IRA to raise
money for a deal. IRA
funds are active in real
estate investing It
is not unusual for
an IRA holder to
ask their provider
if they can invest
their account funds by
pur-
chasing
real estate, investing in
an LLC that is going to buy real estate,
making a construction loan, etc. and have
the response be “No, you can’t.” If you
get that response, it usually means that the
IRA provider doesn’t handle real estate,
but providers like New Direction IRA do.
Moving your IRA (or old 401(k)) from
one provider to another is easy and there is
generally no tax consequence to the move.
An IRA at a provider that
handles real estate assets
activates that money in
the marketplace. For
real estate investors,
that has two significant
benefits. First, your IRA
can utilize your personal
expertise to make money
for your retirement. And
second, when you are raising money for
your personal real estate deals, remember
that IRAs are a rich source of investment
capital. v
Almost all real estate strategies that work out-
side of an IRA can be used to make money inside an
IRA, but it is a good idea to take time at the inception
of a deal to look into relevant IRS rules.
If the IRA does not have the full
purchase price of a property:
An IRA can be a tenant-in-common
with a person, an LLC (or other enti-
ty type), or even another IRA. This
Realty411Guide.com
lender and usually require a larger down
payment; details vary according to the
lender. Other loan combinations are also
possible. TIP: This is a tool that allows
the IRA holder to make money on money
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