IRAs allow you to make tax-deferred investments while you are working so you’ll reap the rewards when you retire. Typically, someone else (often a custodian like Charles Schwab, eTrade, or TD Ameritrade) manages those investments for you, keeping your money in stocks, bonds, and mutual funds.

But what if you want to use your IRA to invest in real estate?

Rolling over your retirement assets into a self-directed IRA, also known as an SDIRA or solo IRA, gives you flexibility and potential for greater returns. I help clients roll over their existing 401(k)s and IRAs into SDIRAs all the time, and most of them love that the SDIRA lets them invest in:

Commercial property
Shopping centers
Office parks
Residential homes (sales and flips)
Tax deeds
Real estate notes/mortgage notes
Tax liens certificates
Purchase options
Raw land
Mobile homes and mobile home parks
Vacation rentals
Joint venture investments
And that’s actually the shortlist. There are many more opportunities available.

Ditch Your Custodian
As I said, the big IRA companies will keep your money in stocks, bonds, and mutual funds. But if you know about negotiating contracts, performing due diligence, and finding deals in up-and-coming markets, you probably know how to beat Wall Street with smart real estate investments. If that’s the case, don’t you want control over how your IRA is invested?

But watch out: IRA companies sometimes use the term “self-directed” to describe what they offer. But this is wrong. Their robo-advisors aren’t going to give you the control you need to put your money in investments that will outperform the stock market.

Advantages of a Self-Directed IRA LLC or Business Trust
One way to achieve greater discretionary and more immediate control over the funds in your self-directed IRA is to form an IRS-approved legal entity into which the funds of the IRA are invested. You (as the IRA owner and the manager/trustee of that legal entity) will assume direct control over those funds and how they are used.

Business trusts and limited liability companies (“LLCs”) are two types of entities typically used for this purpose. With a business trust the IRA owner will serve as the trustee. With an LLC, the IRA owner will serve as the manager. In both cases, the holding entity gives you full “checkbook control,” meaning you will no longer be bound by the rules and regulations of a traditional IRA custodian, nor will you have to waste time waiting for a custodian’s approval to make an investment transaction.

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