This post is based on a real deal in Rhode Island and approximate numbers.
Our model mainly involves single-family homes. But I always talk about becoming a real transaction engineer, and that means knowing how to handle any deal that happens to you. The real estate sector is constantly evolving, so it is important not to be pigeonholed in a particular technique or niche. If you generate leads correctly, you will find all kinds of offers and different scenarios.
Therefore, within the various offers, there are several ways to manage them in relation to cash flow, wealth creation and various fiscal vehicles.
reported: How to invest in real estate with a self-directed IRA
Self-directed IRAs and LLCs owned by IRAs
I'm a big supporter of self-directed IRAs because my real estate is something I can control and protect. I can not control or protect myself in the stock market. And one thing I know for sure is that a stock can go to $ 0 value. My properties can not. Now, you can set up a self-directed IRA quite easily. But then to transfer those funds to an agreement, you must do what is referred to as a letter of investment direction, or ask the administrator of the IRA self-directed to send the funds for the deposit, closing, etc. Instead, I set a one-off direction that has financed ("invested" in) an LLC, and now that LLC can operate and do business without having to go through the administrator and all related documents. *
Keep in mind that you can not own it or be responsible for it
In my case, my wife and I have our own IRA owners of the LLC. So it's actually owned by "Quest IRA, Inc., FBO Chris & Kim" (FBO stands for "for the benefit of …"), and the manager is an unrelated individual. Be sure to check with your CPA and attorney before doing something similar, of course.
I said above that if you are doing lead generation, you will find different opportunities. You can also target leads generation specifically. Several years ago, we decided to buy some multi-unit buildings in addition to our main strategy. We selected "free and clear" (which means no mortgage) as our niche, we chose a postcode and bought a list. We have therefore sent letters to that niche of only about 400 building owners from 4 to 10 units. From that mailing, we purchased a 6-unit building. So, it is clear that you can see different offers to make your way with your normal lead generation, or you can search with determination any type of agreement you want by choice. Incidentally, we liked this list, so we made another shipment and purchased a 4-unit building. Everything you do can and should be predictable this way.
We bought it without money. A type of.
Here's how it was negotiated
We have agreed a down payment of $ 5,000 but we have structured the closing date to be around the third or fourth of the month. When you do, the seller will give you full credit (minus the three or four days that he or she still owned the proportional building) for rents for that month. This is a simple but effective technique when buying multi-unit properties, because if you close, for example, on the 25th or the 30th, you will receive only a couple of days of proportional rent is you should go and collect the rents because of the first one. Why did not they collect them and get paid at closing? So, on this deal, we went away with several thousand dollars closing: we were paid to buy the building!
This was purchased with owner financing with payment-only payments (every month we make payment to the seller, the entire capital is paid) to $ 269,900, the price requested by the seller. The seller's father had built the building over the years & # 80 and has recently disappeared. So the seller lived in the property but did not want to handle it because of business trips. He signed a lease with us and stayed as a tenant.
reported: Take advantage of an underutilized law and invest with your self-directed IRA
- $ 269,900 of purchase
- Monthly main payments: $ 1023.00
- Net monthly cash flow after expenses, including property manager: approximately $ 1,100 deposited monthly by the management company directly to the LLC owned by the IRA
We liked the property, it was easy to manage it through the management company and had a very good cash flow. Normally, we may have thought to collect it with the seller and keep it still, but since it was held in the LLC owned by IRA, we could not buy it from the current agreement (before the 36-month balloon date) -that it would a conflict and against IRS rules related to self-directed IRAs.
We decided to sell it with a real estate agent. We have had several offers within a few weeks. A sure way to make sure you not only know your numbers but also get the best dollar is to use the NOI calculator (net operating income) for buildings of 4+ units. We have sold for a net profit of $ 116,000. Please note that the proceeds are returned directly to the LLC owned by IRA, tax free. Unlike single-family homes, a multi-unit is all about the game. Improve rents and expenses and improve US; improve the US and the price goes up.
What else can you do with your LLC owned by IRA?
Compared to our main strategy, which is the purchase of TERMINI (purchase of leasing, owner financing and subject to single-family houses), we can and often place them in the LLC owned by the IRA for huge and tax-free returns. For example, you can use $ 100 or $ 500 on a leasing contract and then have all three paydays (we create three pay days for each deal we make: cash now, monthly cash, and large cash payments. ). LLC owned by IRA.
* I am not a lawyer or tax expert. I'm simply sharing my experience. Please consult the CPA and the lawyer.
What arrangements have you made with LLC LLC owned by IRA?
Share some examples in the comments below!