Many of our clients are interested in buying fixer properties for their IRA’s to fix and flip with the profits going to their IRA accounts tax deferred (or tax-free in the case of a Roth IRA).

While this is certainly possible with a self directed IRA or Self Directed IRA LLC…is it the best or only way to accomplish your investment objective?

Not necessarily, let me explain….

When you use either of the following scenarios for fixing and flipping there are some drawbacks to each…let’s review

Self Directed IRA with only a custodial account (no checkbook control):

  • The custodian must review the documents and approve the purchase.
  • Any loans on the property must be on a non-recourse basis.
  • The property must me titled in the name of the custodian.
  • You must request expense payment checks from the custodian to pay all expenses of the renovation, utilities, and carrying costs of the property.
  • You can not do any of the work on the property yourself. All improvements must be contracted out.
  • You must get approval of the custodian to sell the property.

Each of these instances not only require an expense in the form of transaction fees but they also take time.

Self Directed IRA LLC with Checkbook Control:

  • No custodian review or approval is required or needed.
  • Any loans on the property must be on a non-recourse basis.
  • The property is titled in the name of the LLC
  • Expenses are paid from the LLC checking account.
  • You can not do any of the work on the property yourself. All improvements must be contracted out.
  • No custodian approval required to sell the property.
  • Proceeds of sale go into LLC bank account tax deferred and can be used for further investments.

All in all it looks like a no brainer… the Self Directed IRA LLC while costing more upfront to set up will more than pay for itself through the savings of transaction fees.

But is it the only solution? the short answer is it depends…..See Part 2 for an alternative solution.

 

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