Real Estate Investment Fund Structure Is Essential for Protecting Your Assets

I often get asked whether a retirement fund such as IRA can be used to invest in real estate. It’s unfortunate that many real estate investors mistakenly assume that their retirement account can only be invested in the stock market, mutual funds or bank CDs. Few investors actually realize that real estate can be held in an IRA account with a self-directed IRA LLC. This structure allows you to invest in any type of real estate deal that doesn’t include disqualified persons.

What is a Self-Directed IRA LLC and How Does It Work?

Also referred to as a real estate IRA LLC, this is a tax court and IRS approved structure that allows you to use the funds in your IRA account to buy real estate and make almost any other type of investment tax-free. In this arrangement, you won’t need the consent of a custodian to make any real estate investments. To purchase real estate, all you need to do it to write a check from your Self-Directed IRA bank account.

The LLC acts as your personal investment fund that is fully owned by the IRA. The cash you have in your IRA is invested into the LLC. You only get to serve as a manager (non-compensated, of course) of this LLC. However, you will have authority to direct the capital held therein into investments of your choosing.  It’s just like putting your money in a conventional IRA that invests into a mutual find, but this time, you’re the fund manager.

Why Use a Self-Directed IRA LLC and Does It Provide Liability Coverage?

Much like the Series LLC that I highly recommend, a self-directed IRA LLC will give you strong creditor and asset protection benefits. Since you’re investing through an LLC owned by your IRA, you gain an extra layer of liability protection as opposed to investing as an individual. You’ll be able to keep your personal assets safe from creditors and would be litigants both outside and inside of bankruptcy. You’re also covered for up to a million bucks in bankruptcy protection.

Should a lawsuit be filed against property you hold in an IRA LLC, both you and the IRA would be shielded from liability or claims associated with the LLC. `For an asset class such as real estate, which is prone to litigation, the IRA LLC model is an excellent consideration.

Some of the other benefits include:

  1. Tax benefits where the proceeds of your investments are tax deferred.
  2. Ability to invest in all sorts of investments.
  3. Full control of your retirement funds.
  4. Speed and flexibility since you don’t need to consult or seek approval to strike a hot deal.
  5. Lower fees as you don’t have to pay a custodian and valuation fees.

While it all sounds honky-dory, you want to steer clear of taking the self-directed IRA LLC option if you live in California. 

Last Updated: 
March 18, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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