Hi, I have a self-directed IRA that I plan to use to purchase a fixer upper. I'm debating whether I should sell the house once flipped, or refinance once rehabbed and then rent it out. The question is, I can get a lower rate using my own personal funds rather than a corp, but is that possible and legal to do so? Or do I have to purchase it from my LLC? Legal implications?
I searched for something similar and saw some similar, but not the same, situations in the forums here--which is why I'm posting. Any help is appreciated!
I have looked into self directed IRA's a little. I am not an expert so do not take my advice as legal but from my knowledge this is what I know.
The short answer is no. When investing through your retirement accounts it has to be through a LLC (most common i believe is checkbook LLC). You cannot mix personal funds with your money in your self directed IRA.
I am assuming it is a post tax IRA and if it is there are some limitations.
1. you cannot take advantage of depreciation so I have heard that fix and flip is better.
2. You have to buy house outright. If you secure additional financing it gets more complicated and you will have to pay taxes on the additional finance part.
You want to make sure that everything is bought with the money in the self directed back account and your money is never commingled with your personal funds.
There are a lot more people that are more knowledgable then me but it is a start and I hope it helps.
You absolutely cannot guarantee a loan in your IRA. You would be breaking the rules if you did and penalties can be up to 100% of your account balance. You can finance your purchase, but the loan must be non-recourse. Here is a list of lenders offering such financing:
Your IRA can not sell property to you nor can you be involved in any other transaction with your IRA. All IRA investments and transactions must be arms length.
You can buy the property directly in your IRA or you can use IRA owned LLC (aka Checkbook IRA)