When you have a Real Estate Self-Directed IRA, you may want to take advantage of the benefits which can come when investing with a partner. These can include access to more capital, which allows one to make larger investments with greater profit potential. Despite this, there are also disadvantages to a partnership such as making sure to select the right partner, changes in your future goals and any of the myriad problems that can come when investing with other people.
In order to avoid these potential difficulties with fellow investors, you can consider partnering your Real Estate Self-Directed IRA with family members such as parents, spouses or children who might otherwise be prohibited from doing business with your Self-Directed IRA. Although they may partner with your Real Estate Self-Directed IRA, after the initial purchase has been made the prohibited individuals can no longer do any business with your IRA. Essentially, they become prohibited people again. This means you cannot change the ownership percentages of these assets once the partnership has been formed.
In addition to these family members, since your Real Estate Self-Directed IRA is a separate legal entity, the perfect, completely trustworthy partner who is guaranteed to have compatible goals is always available – yourself.
Benefits of Partnering with your Self-Directed Real Estate IRA
In addition to greater access to capital from partnering with your Real Estate Self-Directed IRA, there are other advantages. Not only can you purchase more real estate with the larger pool of money, there is also the chance of further enhancing your ability to purchase by possibly qualifying for more leverage.
As well as giving your retirement account the opportunity to make more money, by partnering with your Real Estate Self-Directed IRA yourself you can make additional (although, unfortunately not tax-advantaged) money. The portion of the money which comes from your Real Estate Self-Directed IRA still derives the same tax advantages on its gains as any other investment it makes.
If you partner with family members, more income is made by your loved ones. Even better, if you partner with your family members Real Estate Self-Directed IRA, their income will be tax-advantaged.
Regulations when Partnering with your Real Estate Self-Directed IRA
The are a number of rules when it comes to the operation of your Real Estate Self-Directed IRA. The title for the real estate transaction must state what percentage each of the partners controls. All income and expenses are allocated by the same percentage. All income derived from ownership of the property and its sale must flow in and out of your Real Estate Self-Directed IRA and not your personal funds – unless you are a partner, in which case the percentage you own yourself is directed to your own accounts.
In addition to following the above financial guidelines, there are a number of other rules which apply, even if your Self-Directed IRA owns only a miniscule percentage of the property. Some of them include:
- Neither you nor any other disqualified person may use the property for your own personal benefit. That can mean only staying there for one night.
- You cannot rent the house to yourself or any disqualified person.
- Your Self-Directed IRA cannot contract for goods and services with you, nor with any disqualified persons. For example, you cannot buy a property in the Real Estate Self-Directed IRA and then hire yourself or any other disqualified person to do the landscaping, make repairs or manage the property.
You must always obey the rules which ensure individuals who might be considered prohibited from doing business with your Real Estate Self-Directed IRA remain eligible and avoid significant tax penalties.
Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Or visit us online at www.AmericanIRA.com.