What is an IRA owned LLC?

I recently interviewed a couple that used their IRA to invest in a limited liability company to take checkbook control of their retirements funds. His IRA invested $60,000 into the LLC and her IRA invested $40,000 into the LLC. So the LLC had $100,000 in the LLC checking account. Remember these funds came out of their IRA accounts into this newly formed LLC without paying taxes or penalties because the LLC is the investment of the two IRAs and it is an LLC that they manage and control.  After doing good research they identified a property for $150,000. This same property sold three years ago for $360,000 they realize that that was probably an inflated price as most properties were three years ago.  None the less they were confident in this 2500 square foot home in a nice neighborhood that is less than six years old.

They contacted a non-recourse lender to apply for a loan on behalf of their IRA LLC. The lender told them that they will require an appraisal of the property and would need an analysis of what the property could yield in rental income this is part of the appraisal process. The lender would also need to verify that they have enough funds in the LLC checking account for 50% down and at least 10% cash reserves.  After the appraisal came back the property appraised for $174,000 and the rental analysis came back with estimated rent at $1350.00 per month.  The lender agreed to lend the LLC $75,000 and the monthly mortgage payment would be around $750.00 per month and that includes the escrow account to pay the insurance and property taxes.

After closing on the property the LLC now has a property with a mortgage that needs some minor repairs and cleaning.  They spent around $10,000 to get the house in rentable condition this means that their IRAs total investment into this property is $85,000. They hired a property manager to oversee and rent the property. It takes the property manager three weeks to find a tenant to rent the property.  They agree on $1300 per month with a $1000 as a deposit.  The realtors cut is $130 per month for property manager fees that leaves a balance of $1170 that is sent to the LLC manager to place in the LLC checking account. After the mortgage payment of $750 that leaves a profit of $420 per month in the LLC that’s a little more than 5.5% annually.  But as they stated they are in this investment for the return when they sell the property not the rental income.  The goal was to make enough rental income to pay the mortgage and pay for any upkeep the property might have and with $420 per month of profit they accomplished that. 

They are very happy with their decision to take control of their retirement accounts and invest those funds into an asset that they control and that is a tangible asset something they could touch and feel. They stated that they have had their retirement accounts in the stock market for years and felt helpless and hopeless, their stock market based retirement accounts were out of control.  They are excited about the future of their retirement accounts and will never give up the control again. 

So why are you not in control of your retirement? Are you tired of looking at your quarterly statements and feeling that you have given the control of your IRA to some stockbroker or financial planner? It is your retirement future, take control of it. For more information on how to get checkbook control of your retirement funds contact us today.

Timothy Schubert CISP

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