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How to Buy Your First Rental Property in an IRA | Mark J Kohler | CPA | Attorney


Hi mark Kohler here with another tax and legal tip let’s talk about how to buy your first rental property inside your IRA I know this is exciting to many of you that maybe just searching here on YouTube enough you know falling on my channel others of you that have been following me for years you may know where I’m going with this and this is just a review but bottom line is buying real estate in your IRA as possible people have been doing it for years and it’s an extremely powerful tool and don’t let anybody tell you well because you don’t get the tax benefits of it you should just buy real estate in your own name and definitely not put real estate in your IRA I completely disagree when you’re deciding what you should put in your IRA the question should be what is it what can I put in there to get the best rate of return the best rate of return and you should have a balanced I want you to put money in real estate investments in your own name as well as inside your IRA or 401k your separate simple but when someone says oh real estate should never be in an IRA let’s talk let’s argue about because i think that real estate is provides a wonderful rate of return and it should be inside some level or degree inside your IRAs and 401ks and tax preferred vehicles there’s nothing wrong with that look at the net rate of return so with that stated let’s go through some quick steps of how to get your first rental property in your IRA number one you’ve got to get IRA money to a self-directed custodian now in the Wall Street world you would call this a stockbroker or a brokerage account but in the IRA world we call it a custodian now the 401k conversation that’s one for another video or another day let’s just talk about IRS for a minute now you may have an old 401k that got rolled out to an IRA well let’s take that IRA and put it into a custodians account i know you may put new money in an IRA but it may not enough to go out and buy a piece of real estate but if you have old IRA money and old 401k money step one is let’s get that money to a self-directed custodian and we work with custodians all over the country we can give you a list of some great ones to interview or look at their website and find the custodian that fits your style but these custodians are just going to hold the money until you calm on day two and say I’m ready to invest so get that money to a custodian step one step two we need to decide what we’re going to buy because it’s going to dictate what type of vehicle we’re going to use so let me repeat that make a decision on what the investment within the real estate industry is going to be I mean it could be a single-family home it could be a mobile home it could be a commercial building a building it could even be the process of doing some rehabbing or fix and flips it could be wholesaling I don’t know and that’s gonna really dictate what type of structure you’re going to invest it don’t think that it’s all i’m just going to use a trust or use an LLC and I’m done and home be careful number to decide what type of real estate you’re going to be embarking on and be clear about that I don’t be Harry Carey be quite clear on that investment strategy because it’s going to dictate the next structure number three of course this video’s about rental property and assuming you’re going to buy a rental property so what we need to do is step in step 3 is set up an LLC now this is going to be an LLC limited liability company set up in the state where you’re going to buy real estate not in Nevada not in Wyoming New Mexico or Alaska some sexy sales pitch that you’re going to get from some non law firm or heaven forbid you go to legal to even try to make this happen and custodians are going to go for that this has to be a well-crafted limited liability company operating agreement that has ERISA and IRS provisions and you should pay more than 1,500 bucks to get an LLC to hold real estate owned by your IRA CA IRA is going to hold the LLC and the LLC is going to hold the real estate and so you want to be working with a company that can help guide you through the process i’ll offer because this is really over we’ve been doing this for over 15 years helping clients setup llc’s to own real estate we could do it as affordably as a hundred bucks filing fear may be a registered agent fee but eight hundred dollars is the core feet to get a single member LLC set up now shop around this is an infomercial but it’s to let you know that a real law firm helping clients nationwide can be affordable now this LLC again is going to be in the state where you’re going to own that real estate that’s point number one now you might register a foreign back in your own state if you’re in California that’s a typical problem because California’s going to want your register in their state even if it’s in it a George LLC with Georgia property you have to register for in California and pay their darn eight-hundred-dollar minimum tax which sucks i know but the LA but the LLC is critical to hold the real estate hold the checkbook to buy that rental property next I want to talk about the acquisition of the real estate in the management LLC for a moment now that this is an important step in managing LLC that we talk about what those limitations are now this of course could be a much longer video and my partner Matt Sorenson has written an incredible book called the self-directed IRA handbook this is a chapter in my newest book the tax illegal playbook and we’ve got all sorts of videos on our website and support and when you set up an LLC with our law firm we go through all the details and it’s included in the set up and you talk to a real lawyer now with all that said again let’s hit a couple highlights and that is this LLC which is going to have a checkbook you could be the manager of that LLC you can be the cider of that checkbook that’s ok if your custodian says you can’t you’ve got the wrong stony that’s their rule that’s not the IRS or risks rule and we’ve been studying this and doing llc’s for over 15 years helping clients do this we are experts in this and we stand behind our LLC’s and if you get on and there’s a penalty we pay that’s why we care about practice insurance so we notice custodians have their own internal guidelines the law firm is representing you to design your LS seat so you can manage that LLC you can buy real estate you can control the checkbook but you cannot provide sweat equity you can’t go out there work on the rental property you need to have a third-party manage the room rental real estate you also have to use a realtor can’t be yourself so you’ve got to be cautious on the acquisition and we guide you through those rules but you can manage that LLC so once you’ve got your LLC funded you’re out there you got the checkbook you would write an offer to go buy a piece of real estate and start to go through the closing process now you cannot cosign on the loan or use your credit to get that loan you have to use a non-recourse loan but it’s can be exciting and you don’t have to buy real estate for cash you can pool your money with other people and and to leverage your money in a sense with other partners or you can get a non-recourse loan banks will loan you money usually about sixty cents on the dollar when you put forty percent down and keep it some sort of reserved very common so it can be exciting that’s that step in the process of managing the LLC now finally let’s talk about annual maintenance and again except previously this is a big topic and I’m just trying to get the highlights but once you have this LLC set up in your buying real estate you may need to file a tax return annually there’s taxes that could occur called unrelated debt-financed income and if you’re flipping properties not Reynolds but I want to throw it out there there’s this you BTW i tax or unrelated business income tax or taxable income you’re going to want to learn about these things this is why you’re going to get some additional study and consultation and books to help you through the process and we’ll be there as well as your attorney but it can be very low-maintenance maybe a tech annual tax return an annual evaluation to give your custodian but you shouldn’t have to stress about the process people have been doing this for over 30 years it’s very common and it’s certainly legal so for someone said you can’t do it it’s not that you can’t do it its maybe that they can’t do it because they’re your stockbroker or their custodian rules don’t allow for it but get a law firm behind you if it’s not a law firm that’s when get someone else to write you a comfort letter and give you guidelines so they can stand behind and help you set this up and then maintain it for many years to come bottom line get out there invest with your ira investing what you know best and i think having rental property in your own name and your own LLC is owned by your trust and having rental property in your IRA and the owners LLC’s and you’re out there getting a better rate of return in your IRA I think it’s fantastic have both buckets going don’t be afraid of rental property inside your IRA you can do it give us a call with up to help thanks for watching and if you found that helpful powerful interesting exciting i did i’ve got so much more to share with you i have a whole video series on how to start small business eight steps almost 40 videos 99 bucks simple easy you can start watching it right now and get the steps going to get your business off the ground and every time I shoot a new video you get a copy of it it’s all included in your membership site for lifetime access i guess my lifetime anyway you’re going to love it check it out also I want to challenge you to subscribe to my youtube channel i shoot videos every week got a blog and social media tips and a newsletter every week so much there and you can check it all out at my youtube channel so please subscribe and i hope to see on the backside

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