How do I structure and use my Self-Directed IRA to buy and manage real estate?

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First, ask yourself, are you a passive or active real estate investor?

Passive Real Estate Investors generally send capital to another owner, operator, partnership, or syndication. They often like to invest in Multi-family, limited partnerships, LLCs run by a syndicate, REITs, or real estate funds that make decisions. Passive Investors are best served by a Direct Custody Traditional or Roth IRA. Their activity typically involves:

  • 1–4 times sending money to an investment issuer(s) per year, with a few weeks or multiple weeks notice time
  • Receiving quarterly or monthly distributions in return to their IRA
  • Invest in one or many different passive real estate investments throughout the year and the life of their account (Rocket Dollar does not have per-investment fees)

Direct Custody Model:

Self-Directed IRA Structure

Active Real Estate Investors in retirement accounts can NOT work on the properties their retirement accounts own. They must keep transactions at arm's length because of IRS-prohibited transaction rules. These investors might be interested in a checkbook control account to manage time-sensitive transactions. It is still possible to hold one or a few properties through a direct custody IRA, but time-sensitive or many transactions might increase stress around turnaround times. Active Real Estate Investors frequently are:

  • Sending money to contractors, maintenance staff, property managers, and repairs quickly in emergency situations
  • Pay administrative expenses, large and small, frequently throughout the month and month-to-month
  • Receiving rent checks and immediately turning that money around back into the property in less than 48 hours
  • Closing on properties is competitive, such as competitive residential bids and earnest money, auctions, tax liens, etc.
  • Typically target individual and smaller properties, with no other investors. Since working on their properties is not allowed, they may hire a property manager or have repair staff.

How does the Checkbook IRA structure work?

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How do dollars go to and from my real estate investment?

The basic flow of funds is Open, Fund, and invest.

Direct Custody IRA:

  1. Open Online, IRA is created within 48 hours
  2. Fund through an IRA transfer or contribution, 4-7 business days; some providers can be much slower to send funds
  3. Submit investment documents and wiring instructions, funds go out, usually within 48 hours.

Checkbook IRA:

  1. Open Online: IRA is Created within 48 hours
  2. Trust is created to hold your assets and act as an umbrella for all investments below it, which might just be one real estate investment, an LLC holding real estate. You can select a custom name for your trust if desired, or you can accept the default. John Smith will get a trust default named “JSMITH RD TR”
  3. Trust Bank account is created at Rocket Dollar’s partner bank, Bank United
  4. Funds drop from the IRA account to your trust bank account
  5. You can wire funds out to any investment at any time and sign closing paperwork at any time.

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