Advice on business structure

[Jeff Harvick]

My wife and I are getting close to being ready to become real estate investors. She works full time in the oil and gas industry and I run our small business (which is currently for sale). A little background on our story....We started our small business by creating a C-Corp with a transfer of funds from my IRA. The C-Corp is owned by our “retirement “ account. With the funds, we purchased a franchise with the anticipation of putting profits from the business back into the retirement account. Unfortunately, we haven’t made any profits from the franchise. Therefore, we have the business for sale and hopefully the new owner will find a way to profitability. We, however, have no interest in staying in the franchise business. We have discussed owning rental property for quite sometime and we are ready to begin the search but would like some feedback on how to structure the deals. Here’s what I’m thinking- 1) Create a new LLC for my wife and I for rental property. 2) have our C-Corp purchase a rehab SFH. *** I’ve been told that since the funds from our IRA started the C-Corp, the company can not own passive income investments. 3) C-Corp rehabs the property. 4) C-Corp sells the rehabbed property to our new LLC slightly below market value. 5) New LLC turns rehabbed property into a rental property. Profits from the sale from C-Corp to LLC go back into the C-Corp to invest into additional properties. C-Corp May also simply flip houses and sell to retail buyers if LLC isn’t interested in acquiring for the rental portfolio. So, my question to the forum: Has anyone done this type of business structure before and your thoughts on strategy? Thanks for your time and feedback.

[Ned Carey]

@Jeff Harvick Welcome to BP.

First a C-corp is a terrible way to own real estate for many reasons.  Get a good CPA tell you why. 

If your "Retirement account" is a Self Directed IRA, Your LLC (unless owned by your retirement account) cannot do any business with the C-corp or your retirement account. You personally or any company you own cannot in any way do business with your IRA.

The rules are complex here and it depends on the type of retirement account. The rules are designed to prohibit "self dealing". There are disqualified persons you cannot do business with. (yourself and family) 

The idea of using retirement funds to invest in real estate is a good one. But get professional advice from only experts in self directing retirement accounts.