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Investing in Real Estate with IRA LLC

by | Oct 7, 2020 | Alternative Investments

We recently spoke with one of our clients, Jayce, about his experience investing in real estate with his IRA LLC and the convenience of acting as manager of his IRA LLC. His IRA LLC checking account had $100,000 in it. After doing proper due diligence, he identified a property for $150,000. He was confident in this 1800 square foot home in a nice neighborhood that was less than ten years old.

He contacted a non-recourse lender to apply for a loan on behalf of the IRA owned LLC. The lender told him that they will require an appraisal of the property and would need an analysis of what the property could yield in rental income. The lender would also need to verify that he has enough funds in the IRA LLC checking account for 50% down and at least another 10% in cash reserves.

Delightedly, the property appraised for $174,000 and the rental analysis determined this property could demand $1,350.00 per month in rent. The bank agreed to lend the IRA LLC $75,000 and the monthly mortgage payment would be approximately $750.00, including insurance and property taxes.

The IRA LLC now owns a property that needs some minor repairs and cleaning. The IRA LLC spent around $10,000 to get the house in rentable condition. This means that the total investment into this property was $85,000.

Jayce hired a property manager to oversee and rent the property. It takes the property manager three weeks to find a qualified tenant. They agree on $1,300 per month with a $1,000 security deposit. The realtor’s cut is $130 per month for property management fees and leaves a balance of $1,170. The tenant must write the rent check payable to the IRA LLC and that rent must be deposited into the IRA LLC checking account.

Case Study – Investing in Real Estate with IRA LLC

After paying the mortgage of $750 that leaves a monthly profit of $420 for the IRA LLC. That is a little more than 5.5% annually. But Jace knew he was in this investment for the long return on investment when they sell the property, not for 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 he accomplished that.

He is happy with his decision to take control of his retirement account and invest those funds into an asset that he is in control of and that is a tangible asset…something he can touch, feel and see. Jayce told us he had invested in the stock market for years and felt helpless and hopeless. He did not understand it and he had no control. He is excited about the future of his retirement account and will never give up that control again.

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