4 Categories, Limitless Combinations

Welcome back to our American IRA Self-Directed IRA Series! Today we’ll get into the very heart of self-directed IRA accounts: the investments themselves. You can classify investment assets into 4 main categories: real estate, private lending, private entities, and Limited Liability Shares. Hitting the high points should give you a general idea of what each has to offer before you open an account.

Real Estate

Real estate is the most popular option for self-directed IRA accounts, and it’s also one that American IRA specializes in because we were founded by investors for investors. While there are many, many possibilities in the real estate market, we’ll stick to discussing two strategies today:

  1. Fix and flip involves finding a piece of real estate, improving it and/or waiting for it to increase in value, and then “flipping” (selling) it for a profit, all within the structure of your self-directed IRA. Please note that you should always plan ahead for this kind of asset by keeping reserves in your self-directed account to cover unforeseen expenses.
  2. Buy and hold is simply investing in rental property for the sake of cash flow and future appreciation. This is one of the most common uses of a self-directed IRA because it offers passive income, the ability to leverage property to increase your return, and the potential to sell the property for a profit when it appreciates. Keep in mind that the main source of profit for this investment is rental income and the IRA will collect all of this income and pay all of its expenses.

Private Lending

Think of private lending as your IRA becoming a bank for a worthwhile investment or investor with the goal of earning a specific rate of return. Your IRA is listed as the “lender” in official documents, but in most situations you won’t have to pay costs associated with purchases made with these funds; instead, the borrower is generally responsible for all costs associated with making private loans.

For example, if you loan money to an investor who then purchases an investment home, you’ll set the terms up, complete a buy direction letter, and review closing documents all while working closely with the proper attorneys. This loan will receive tax-deferred payments that you can track online. After a while you’ll receive the total amount of principle along with predetermined interest payments.

Private Entities

Private entities comprise of:

  1. Private placements – which allow investors to pull funds together in order to acquire properties that they would not be able to afford to invest in alone
  2. Private stock – non-stock exchange listed stock. That is to say ‘stock in private businesses’. Some private businesses offer stock in an effort to raise the capital they need to expand

Examples of private companies that started in a garage are “Google” and “Apple”. Prior to being listed on the stock exchange, these were private companies that issued private stock.

IRA-Owned LLCs “Checkbook Control IRAs”

An IRA-owned Limited Liability Corporation, or LLC, offers several intriguing features:

  1. Asset Protection – In the event that real estate is owned by the LLC, it limits the liability to the LLC instead of the entire IRA
  2. Checkbook Control – This is a specialized LLC that is particularly helpful for people investing in tax liens or courthouse foreclosures
  3. Tax Benefits – Since the LLC is owned by the IRA, it has all the same tax benefits as if the assets were owned directly by the IRA
  4. Investment Options – The LLC has the same options that a self-directed IRA offers and is subject to the same IRS limitations thahttps://americanira.com/lp/fixing-flipping-real-estate-american-ira-case-study/t we have already discussed

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