Establishing a Self-Directed IRA allows you to use retirement funds in order to purchase real estate. The IRA account holds the investment and the property is managed by a custodian. Even though an outside party is directly responsible for maintaining the property, a self-directed IRA gives greater control over your retirement. Using a self-directed IRA to invest in Texas Commercial Real Estate can offer significant returns over traditional investments.
The first step is to establish a Self-Directed IRA LLC. This entity acts like a corporation or ta rust which will own the property you want to purchase. If you have enough money in your IRA account on hand, you can purchase the property for the full asking price. If you don’t have enough money in your IRA, you can seek out other investors. The IRA can purchase an interest in the property. Owning a specific percentage of the property alongside other investors. . You can even borrow against a self-directed IRA .However any mortgage taken out in the name of the IRA must be non-recourse, meaning the property itself must stand as collateral.
This method of investing in Texas Commercial Real Estate comes with very specific restrictions. Above all, income and expenses related to the property, must go to and originate from the self-directed IRA account. A custodian approved by the IRS must manage the account. The custodian approves the release of funds from the account and tracks all income related to the property. You can have no involvement in maintaining the property. Even replacing a light bulb could put you at risk of breaching the terms set by the IRS. Obviously you cannot gain a direct benefit from the property. This means you can’t use the property as a vacation home. Borrowing against a Self-directed IRA means you will have to pay unrelated business income tax on any income earned from the property. Before pursuing a self-directed IRA, educate yourself so you can get a better understanding of these restrictions involved and always consult with experts
The fact that the custodian must approve the release of funds from the self-directed IRA account is a potential limitation on your ability to invest in the property. Because you can’t be directly involved with maintaining the property you will likely have to hire a property manager .This potentially creates an additional expense. If you borrow against a Self-Directed IRA you will have to pay taxes on any income from the property. Thus negating the main benefit of a Self-Directed IRA
Using a self-directed IRA to invest in Texas Commercial Real Estate could enable you to establish a steady stream of tax deferred income to fund your retirement. The fact that the IRA is the holder of the property, protects your assets from bankruptcy. Above all a self-directed IRA gives you greater control over your retirement. Investing in Texas Commercial Real Estate with a self-directed IRA could enable greater returns above and beyond traditional investments. But with the potential for greater rewards, there is also greater risk. It is important you have detailed knowledge about Texas Commercial Real Estate before pursing this investment method.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
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Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
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111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.