Any investor can tell you that a limited liability company (LLC) is the way to go when it comes to investing in real estate or other assets. LLCs make it possible to limit the liability exposure of LLC owners from common investment dangers. Plus, it’s quite simple to use a self directed IRA to acquire real estate and other assets with a LLC, and we can show you how.
Let’s pretend that you are an investor with a self directed IRA containing a fair amount of cash. If you wanted to use this money to purchase a foreclosed property at a public auction, you would be responsible for supplying the full purchasing price of the property within a 24 hour period. If you didn’t have this money on hand and couldn’t get it in time, you could set up an LLC to be used by your IRA. Thus, you would have immediate access to the money you need. You could easily use an attorney to help create and register the LLC under a name of your choice. This makes your IRA both the owner and a member of the LLC. You could then name a friend or a business associate as the LLC manager, enabling this individual to sign contracts, write checks, and wire funds from the LLC bank account.
After completing a few simple documents, you can invest in the LLC and have your attorney prepare an Operating Agreement. The managing company can use the IRA to buy interest in the LLC in exchange for a capital contribution from the IRA. You would simply approve the LLC operating agreement and have it signed by the representatives responsible for executing the operating agreement. The manager can sign the agreement and open a bank account under the LLC name.
Once all of the funds have been wired, the manger can begin bidding on and purchasing properties under your direction. Any foreclosed properties your manager wins will be titled under the LLC name. The funds will be wired to the county clerk, completing the purchase of the property.
You can then maintain and rent these properties for as long as you like. The manager will be responsible for common expenses, such as taxes or insurance, and will pay them using money from the LLC account. Cash can slowly accumulate in this account and, if you desire, you can use it to purchase more property or to acquire more assets. Cash will flow into the LLC account, and out as well. However, if managed carefully, there will be a growth in cash flow.
At some point, you may also decide to sell the LLC properties and close the account. If done correctly, you will make money on this deal. The sale proceeds will go back to the LLC accounts. Obviously, this example shows just how easy it is to invest in real estate using a LLC. While your experience may vary slightly, you are sure to succeed and to make a real profit if you follow careful guidelines. For best results, you should also work with an attorney and an accountant to help you along the way.