For those out there that are working on getting their retirement ready for themselves, you may be trying to think of new ways to make your money work for you.
One place that a lot of people like to invest their money is buying real estate.
However, for those that have their retirement saved up and growing in an IRA, it might seem impossible to build up capital in order to invest in real estate.
But there is a way that you can use that money that you’re saving up for real estate investment.
When most people think of an IRA, they think of an account that they pour money into.
They might ask the person or company looking after the account, also known as the custodian, to use that money to buy stocks or mutual funds or other similar investment types.
While this is stable, it is rather slow and might not gain as much money as you might like.
But there is a way that you can make more money with that money that’s holed up in the account that you have created.
Here's a quick rundown of our list:
- IRAs with Checkbook Control
- Investing in Real Estate
- Weighing Risk and Reward
- Pros and Cons of Buying Real Estate with an IRA
- Case Studies
- Best Companies
IRAs with Checkbook Control
Instead of a typical IRA, what I’m asking you to look for is an IRA with checkbook control.
Checkbook control simply gives the account holder the ability to make decisions quickly, write a check, and invest in just about anything.
There’s a large potential in using your IRA this way to make money.
While this method might sound brand new, it’s not that new.
It’s a more risky method that few people talk about because few larger companies will create IRAs with this ability.
The way that an IRA with checkbook control is created is quite simple.
With a typical IRA (Roth or traditional, it doesn’t matter), you instruct the custodian to buy all the units of an LLC that you have created.
The LLC opens a bank account where the funds of the IRA are deposited.
Now you, the account holder and owner of the LLC, have a checkbook that has direct access to all the money that you put into your IRA.
Instead of having to go talk to the custodian of your IRA, you can instead write checks and invest when it suits you best.
There’s another huge benefit to doing your IRA this way: it can actually save you money.
A typical IRA has a flat fee of roughly $900 and that fee will go up as you decide on invests and request them through your custodian.
Each approval has its own fee.
Over time, all of these fees really add up.
When you’re creating an IRA with checkbook control, you will be likely going through a company that is used to working with that kind of structure.
For the first year, it might cost a little bit more than a typical IRA, but after that first year, it becomes quite cheap.
There won’t be as high of a fee for the company to maintain the structure, and there will be absolutely no custodian fees to pay for the decisions that are being made with the account.
However, creating an IRA with checkbook control might be harder than it sounds.
Some companies that do IRAs will purposefully avoid creating accounts that will have checkbook control because it’s a tricky place to be legally.
But the upside to this situation is that anywhere that does IRAs with checkbook control will also have lessened fees for IRA accounts that will end up with a checkbook control structure.
Getting high returns on investments demands risk, as is usually typically in the financial world.
IRAs stick with things like mutual funds and bonds because the risk is so low.
But this also means that most people don’t get a large return on their money.
Instead, they’ll find themselves making only a little bit of money and perhaps only keeping up with inflation instead of really expanding their money.
While I will be focusing on investments in real estate, it’s important to note that an IRA with checkbook control really does open a lot of doors for those that wish to diversify their IRA and earn money from a number of different sources.
Instead of just typical funds, you can invest in such things as tax liens.
All of these purchases, which can be done without custodian approval will be able to really make sure that your money is safe by putting it in a number of different accounts.
This will ensure that your eggs aren’t all in the same basket.
The freedom and ability to access your own money to make investments is also a huge benefit for those that want to do more with their money.
Investing in Real Estate
One of the best things to invest in is real estate.
There’s a lot of different choices on what to buy and a number of different ways that you can really make money when you’re investing in something like real estate.
However, the ways that most people make money are rather simple.
When you begin thinking about investing, let's say Downtown San Diego condos, with your new checkbook controlled IRA, you’ll want to consider how you’ll be making money.
You can earn rent from people that live in a home that you own or on land that you own where people may do work or farm.
You can also earn money by buying properties, most likely residential homes or such in San Diego, and waiting until their value appreciates and then selling them.
It is likely that you can do both if you are owning a home.
This way of making money can be incredibly profitable if done well by the right person.
You might consider becoming a part-time house flipper in order to make your IRA money work a little harder for you.
Flipping a house is the process of taking a property that has a lower value and then remodeling parts of it to make the property more valuable on the market.
After the flipper has remodeled the house, they will sell it and then move onto a new property.
If you’re considering buying just raw land, then there are several ways that that land could be used by people that are interested.
If a company approaches you about using the land to hold gravel or creating a by road or putting up a cell tower, then for every action they will pay you for what they’re doing.
If they’re doing something that’s a longer term project, then you will continually be earning money from them.
Another possibility is renting the raw land to farmers that can then use that land to make some money themselves.
There are some risks that come with investing in real estate, but those are longer-term risks that you may be able to spot before they get too bad.
These risks include the fact that some houses may depreciate in value because of things that are outside of your control.
This includes the neighborhood.
If the neighbors decide that they don’t want to do their lawn anymore, then the area is going to look a little worse for wear and this will make the rest of the neighborhood go down in value as well.
While such things are outside of your control, you may be able to spot some of these things before you invest in a property.
Keep an open eye for things like this.
Weighing Risk and Reward
There might be those out there that are wondering if getting into an IRA with checkbook control is really for you, then you can step back and think about other ways that you can invest in real estate with a self-directed IRA that doesn’t have checkbook control.
This method does come with a few more fees but will be slightly less risky than everything involved in the checkbook controlled account.
You can invest in business properties and rental properties, but not residential properties.
So instead of looking carefully at homes in San Diego, you’d be looking at properties with businesses or that have the possibility of growing your money.
This method can be prudent because there are more specific rules that will help direct you.
You might need an expert that knows what’s going on, but it should be easier to get into.
However, there are many people out there that want to see their money doing just a little bit more, so the risk of creating an IRA with checkbook control might be worth it to them.
They’ll be able to really get everything done the way that they want and not have to worry about all the red tape that might get in their way if they were doing things the typical way.
Whether an IRA with checkbook control is right for you is up to you.
You may see all the possibilities for investing in real estate and realize that this is how you want your money to work.
That is completely okay.
And if after reading this article you decide that maybe an IRA with checkbook control might not be the way you want to go, but you do want to invest in real estate, then that is perfectly acceptable as well.
Blog Post Interrupt - Will You Lose Your Deposit?
Now Back to the Blog Post
Question: Can I use my IRA to purchase real estate that I already own?
Answer: Nope. This kind of transaction is prohibited by law.
You cannot by land from yourself or by family members.
By the same law, any land owned by an LLC, corporation, etc. that you own is not available for purchase by your own IRA.
You may also not live in or work in a property that is owned by your IRA. All of these are prohibited by law.
Question: Does rental income earned from properties my IRA own have to go back into the IRA? How does it get into the account?
Answer: Yes. Any income generated by a property owned by an IRA has to go back into the IRA.
This is done in order to ensure that the tax-deferred or tax-free status remains for the investment.
How the money gets into the account is usually through a check that is made out to the IRA.
The custodian that receives the check will deposit it.
How specifically the check should be made out depends on where your IRA lives.
Question: Are the IRA funds available for me to use for renovating a property to sell it for a higher price?
Answer: Those funds are available for you to use for renovations.
The money made from the sale will go back into the IRA where you will be able to make future investments with it.
You will not be able to keep any of the money outside of the IRA or the IRA LLC after the sale?
Question: How do I go about selling a property that I purchased with my IRA?
Answer: You will need the original documents from the company that is the custodian of your account.
How you get these documents will depend on who is in charge of your account, but simply asking them about it should get you on the right track.
After the property is sold all of the funds have to be put into your IRA, but you will be able to use that money to purchase more properties as you go forward.
Question: After selling a property, can I keep a part of the funds and send the rest to the IRA?
Answer: All of the money that is generated should be sent back to your IRA.
You cannot keep parts of it for yourself.
This is done to ensure that the tax-deferred or tax-free status of investments is kept.
Pros and Cons of Buying Real Estate with an IRA
There are many reasons for people to buy real estate and many reasons why people shouldn’t.
There are some risks that people don’t think are worth the possibility of gain, and there are some positive aspects that will outshine any of the negatives.
Below is a short list of the possible pros and cons for investing in real estate with an IRA that is checkbook controlled.
One of the biggest advantages of using an IRA is the fact that the money is often tax-deferred, so the investments that you’re making are free of some of the taxes that they might have otherwise been subject to.
This means that there is more money for you to use for your investments.
Typically, an IRA is one of the safest places that can money can be.
While checkbook can make it a little more complicated, an IRA still offers a lot of safety for money to grow.
Often money held in IRAs is also safe from things like bankruptcy.
Although that is up to the state.
An IRA can’t even be sued since it’s a trust account, so the money within an IRA will be safe while it’s in the account.
While you have to be actively participating in order to make the money work for you, this can still be a great benefit for anyone that is especially interested in making more money.
Those that have the time to learn or the already have the knowledge can really take their money farther as long as they are active.
So being able to control the account closely makes it even better.
Real Estate Offers Great Reward
When investing, real estate offers a great way for people to diversify.
Whether you’re making money through flipping houses or just earning rent on the property, there is plenty of money that can be made from investing in real estate, whether it’s raw land or actual buildings.
An IRA is subject to a number of fees and that can make using an IRA less interesting to some people.
For typical IRAs, the fees are even higher and there are mini fees incurred whenever the account holder asks the custodian to do something with the account.
When it comes to checkbook controlled accounts, there are still fees that are in place.
They are much lower than the ones for typical IRAs, but they still exist.
IRAs are in a class of accounts that are extremely regulated.
There’s a lot of rules to follow and even more paperwork to fill out at times.
Many of these rules will focus on what you can’t do rather than what you can do.
Having your account disqualified would mean losing tons of money, so trying to follow all the rules is incredibly important for your future.
However, because of all those regulations, people don’t know what they can do.
The fact is that people can actually have multiple IRAs with multiple companies, but that is disclosed anywhere obviously.
This is especially true if you are looking into a checkbook controlled account.
Checkbook control sits on a grey, blurred line.
There are many people that would be interested in checkbook control if came with a little more safety.
These complications will make it even harder to navigate the minefield of regulations without doing something that will disqualify an account.
Real Estate Also Offers Great Risk
While real estate is often a source of great reward, it is usually the case that investing in real estate can also cause great harm to your funds.
While you can improve the house or property that you’ve invested in, it’s impossible to force everyone else around the property to also do the same.
Sometimes the value of a neighborhood goes down because of something beyond the control of anyone in the neighborhood.
This risk may be something you can try to spot from far away, but it may not always be something you can stop from happening.
When looking for properties near San Diego, a man who was working with a checkbook controlled IRA really started looking for properties that he could flip.
He ended investing in a property that cost $299,900.
When he was done fixing the property up with money from in his IRA, he sold the property for around $375,000.
Although it wasn’t the most anyone has made on a flip, he has gone on to keep using that money to purchase and flip other homes around San Diego, turning up profits of anywhere from $50,000 to $80,000 dollars per house.
Rentals for Retirement
Over the span of 10 years, a man purchased roughly 25 rental units that he has been renting out during that entire time.
He amasses all the money from income in the LLC that is connected to the IRA and then purchases another rental unit.
After doing so well and with so many properties, he hired a management team to take care of the properties.
They send in reports and he makes changes as he sees fit.
Even after reaching the age of 59 and ½, the man has no incentive to stop making money this way.
Farmers and Your Land
There are farmers out there that use their IRA money to purchase livestock in order to make money.
Three farmers set out to do just that, but there is a little hitch in the plan that they created.
If livestock is purchased with money from an IRA, then they cannot be let out onto the property owned by the same person or be taken care of by them.
For the farmers that purchased the livestock, it was easy enough to find friends and other farmers that had the land that they could use, but it was still a roadblock for them to get around.
There were some fees and wages that came from using other people’s land and hiring people to take care of the cows, but that amount of money didn’t make too big of a dent out of the money that the farmers made from buying the livestock in the first place.
Buying Commercial Property
When considering buying property, considering commercial property is a rather important part of the process.
While commercial properties don’t seem that exciting, there is money to be made there.
Three men came together to purchase a commercial building that was full of office space.
Two of the men were using personal funds, but the third was using funds from his IRA in order to make the purchase.
He was interested immediately in the prospect of renting space in the building, but that is prohibited by the law.
Even after he realized that he couldn’t rent from there, he and his friends still invested in the property.
The three of them have been making quite a bit of money off of it.
The man that used his IRA has been able to accumulate money to work on purchasing other properties.
When it comes to finding companies to work with, people may be a little bit scared of figuring out which companies are actually reputable.
Here are a couple of the best companies for IRAs with checkbook control.
There are plenty of companies out there, but you’ll probably want to visit these ones first.
Check Book IRA - This group serves the entire United States and has plenty of information even if you don’t make an account with them.
You’ll want to at least visit them to get the scoop on what you should be doing to make the most of your money.
Equity Trust - Whether you’re just starting or experienced with IRAs, this group has everything that you need.
They’re another great source of information and they’ve been featured by The New York Times, Bloomberg, Forbes, and many more.
The Entrust Group - This company boasts about their self-directed IRA services and for a good reason.
This group will help you diversify your portfolio in a way that only they can help you do
Having checkbook control is important if you want to use real estate for your retirement because it will allow you to make decisions quickly.
Even though real estate isn’t really an option for the typical IRAs, having checkbook control allows you to make the decision whenever you want it.
You won’t have to pay those extra fees for your custodian to approve what you’re doing, but you’ll have complete control over how the money is spent.
You’ll be able to really diversify the money that you’re using to create your retirement.
Not only is investing in real estate a typically good move but using it as a way to boost your retirement fund is the way to go.
You’ll have more money tucked away for when you finally stop spending your days working.
And then you’ll be able to truly relax instead of worrying about how you’re going to be able to actually remain retired.
You might also develop a keen eye for properties in San Diego that would be good investments and be able to pass that onto your friends and family if you want.
What do you think?
I would love to hear your thoughts - leave a comments below or text/call me at (760) 297-4539.
Your Check Book IRA Insider,
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