Real estate investors face funding challenges at times due to a number of reasons. One of those is having too much money in physical assets (properties) which leaves them short on cash. One little know strategy to overcome these hurdles involves using self-directed IRA to flip houses. Read on to learn of the benefits of borrowing from your IRA and how you can super charge your retirement savings.
Access to Cash
Many times, investors get stuck with their financing. This can happen for a few reasons, including trouble acquiring a loan or no access to liquid funds.
Credit history can be a problem for some. An inexperienced investor might have thought the only path they have for funding is traditional lenders, such as banks.
Experienced investors know that is not the case.
What a self-directed IRA allows you to do is include “other” types of investments, like real estate, under the IRA umbrella.
And once you have your IRA in a self-directed IRA, you can borrow funds from that account, using self-directed IRA to flip houses.
Super Charge Your IRA
Another reason why using self-directed IRA to flip houses is that it allows you to quickly build your IRA.
When you borrow against your IRA, you are required after you sell your flip to return those funds and your profits back into your IRA.
This allows you to exceed the federal contribution limits and supercharge your account.
You can grow your IRA by tens of thousands of dollars using this technique.
Asset Protection Inside the IRA
Many using this technique will place their properties under their IRA inside a Limited Liability Company (LLC). Loans against your IRA are Non-Recourse Loans.
Non-Recourse Loans mean that in the case of a default on the property, a lending institution can only go after that specific property held inside the account. They don’t have access, for example, to other properties or assets you might have under the LLC umbrella.
Don’t put all your eggs in one basket is a familiar cliché known by many and is true when it comes to investing.
People bet heavy on crypto, for example, only to lose everything.
History is littered with examples of people who invest heavily in one particular investment niche, only to see the market tumble, taking all their cash with them.
Diversifying across several industries and business sectors keeps you protected. If one investment performs poorly, hopefully (fingers crossed) the other types of investments in your portfolio don’t suffer the same fate.
By using a self-directed IRA, you can have whole properties under your IRA along with traditional investments like stocks and bonds.
Protect Your Investment Funds from Inflation
Inflation is the silent killer. It creeps along, rearing its ugly head on occasion. Investors hate inflation. It eats away at the value of cash. The higher it rises, the less value your dollars are worth.
One strategy investors use to protect their wealth is to put their cash into a hard asset. This could be many things. Hard assets are tangible, physical assets and include things like land, consumer goods, commodities, and real estate.
When inflation rises, these hard assets can act as a hedge against inflation. That’s why real estate has been popular for many in protecting their wealth and shielding it from the erosion of inflation.
Invest in What You Know
For many, investing in stocks, bonds, or other investment vehicles is complex and confusing.
The power of the self-directed IRA is it allows investors to invest in things they understand.
If you understand real estate and believe in its power to build wealth, than why not invest inside your IRA?
Because many IRA custodians that manage IRAs don’t give you that power. They might give you choices, but they choose the types of investments available for your account.
With your self-directed IRA, you can invest in the following for example:
- Undeveloped land
- Domestic or foreign real estate
- Residential or commercial property
- Homes to flip
With a self-directed IRA you gain checkbook control. What this means is that you have complete control over the investment decisions for your retirement funds. To make this happen, you need to establish the IRA inside the LLC with yourself as manager.
Making those investments under the umbrella of the LLC gives you personal liability protection.
And as the check signer for the LLC, you can now borrow against your IRA to fund your fix and flip investment.
Ready to Take Your IRA to the Next Level?
Join Circle of Wealth LLC Fund III Manager, Heather Dreves in this FREE webinar in which she shows you how to setup and use your self-directed IRA.
Heather has been in the private money industry for over 15 years and has been directly involved in the sale of over 75 million dollars in Trust Deed Mortgages. Since her time with Secured Investment Corp, she has raised over 10 million in Secured Investment Corps High Yield Equity Funds.
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