Investors, we all know that there are serious profits to be made with rehabbing real estate investment deals. But have you ever thought of using your Self Directed Retirement Account to “finance your real estate deal”?Huh?? That was my initial response as well. So I sought out some experienced help in explaining how all of this could work for REIClub.com investors.
I had a chance to connect with Kurt Jacobson over at RentFinder who shared this with me: “When it comes to rehabbing homes, doing it in a self-directed retirement account can offer a number of benefits and make the financial aspect of home flipping all the more lucrative. So long as you already have at least some money built up in your retirement account, you’ll be able use this strategy to the fullest.” In the article below, Kurt , outlines just a few of the advantages of flipping a home in a self-directed retirement account.
4 Benefits of Rehabbing A Home Using A Self-Directed IRA
1. Tax free profits
Purchasing a home that needs some love and affection, providing it with that, and then selling for a profit can be both personally and financially rewarding. However, the financial rewards of flipping homes can oftentimes be diminished due to taxes. Luckily, there are some perfectly legal, above board methods of home flipping that mean you can enjoy the fruits of your labor completely tax free. One such method is by doing the project in a self-directed Roth IRA, as all gains are tax-free – or if you have a regular IRA, gains are tax-deferred until distribution is taken. This means that you are saving a huge portion of your profits instead of sending them directly to Uncle Sam.
A self-directed IRA that has checkbook control means that flipping homes or performing real estate transactions really is as easy as writing a check. Normally, IRA transactions can be complicated with paperwork and custodial approval. A self-directed with checkbook control – attained by forming an LLC that is owned by the retirement account – becomes straightforward, saving you time and preventing hours of stress and frustration. It shouldn’t require a degree in finance to be able to manage your own!
When you choose to manage your own self-directed IRA LLC, you have more independence in controlling your own financial decisions. This basically means that you can purchase a home with your self-directed IRA and pay for the improvements you wish to make on it all on your own. If you don’t happen to have enough money in your IRA to cover the full costs of purchase and rehab for a specific property that has come available, a hard money non-recourse loan is always an option as well. Having the authority to make real estate investment decisions without requiring the red-tape of an IRA custodian really does provide a feeling of satisfaction, independence and control over your own financial destiny.
4. Save on fees
A traditional self-directed IRA that requires custodian consent also requires a high level of custodian fees. By creating a self-directed IRA LLC with checkbook control, you can completely eliminate these fees. Not only does this mean that you can flip a home in your IRA and save even more money, but it also means you won’t have to pay somebody else to do something that you are perfectly capable of achieving yourself. Besides, who doesn’t like saving money on those usually inevitable fees?!
Investor Tip: Of course, the entire notion of rehabbing a home in a self-directed retirement account is a better fit for those who have experience successfully running a rehab project. Those who have already done a few investments like this know the potential that lies within the strategy.
So if you’re looking to flip a home in the near future and have at least some cash built up in your retirement account, considering a self-directed IRA LLC is a great idea. You won’t have to pay taxes, and with SDIRA checkbook control the whole process becomes much more simple as you are able to control your own transactions and financial decisions.