Many people want to invest in foreclosed homes, but do not have the financial resources. Although it is possible to buy foreclosure homes for sale using creative financing techniques, most foreclosure investors will, at some point along the way, need money to invest in their foreclosed properties transactions. Some people work full time, which helps to fund their foreclosed homes investment activities.
Investing in foreclosure homes require a person to have a nice savings account or a cash–laden investor to support their foreclosure investments. Other individuals seek to diversify their retirement portfolios with investment instruments other than stocks, bonds or mutual funds. Foreclosed properties provide the opportunity for these people to diversify into another asset class.
Self-Directed IRA
Many people do not know that the IRS has always permitted owners of IRAs to buy real estate, including raw land, commercial properties, foreclosed homes and other real estate. This offer an opportunity for individuals with self-directed IRA/ LLC control of the money to purchase foreclosed properties for sale without having to get special permission from the custodian or pay transaction fees, by simply writing a check.
One of the most important benefits you reap from using a self-directed IRA/ LLC– all gains remain tax-deferred until you decide to take a distribution.
Establishing a Self-Directed IRA/ LLC
Before you start the process of setting up the Self Directed IRA/LLC to purchased foreclosed homes, make sure you can transfer the money. If your employer has the funds in a traditional custodial account, you will probably not be able to move the money. Some employers allow self-directed investing. In addition, find an attorney who has experience with LLCs and research a name for your LLC.
Assuming you can transfer the money from your IRA, 401(k), 403(b), Roth, SEP or other retirement account, you will need to complete the following steps:
1)Transfer the funds into a Self Directed IRA/LLC. You will likely incur additional expenses when rolling over in kind assets. The majority of custodians will roll over the in a short period. Other custodians may not process the transfer request as fast. Therefore, give yourself time to have the account in place before identifying foreclosed homes to buy.
2) Place the funds in an account with a non-traditional custodian. This is the most important aspect of setting up the Self Directed IRA/LLC for your home foreclosures investment business. Most traditional custodians only allow investments in assets like bonds or stocks. A non-traditional custodian permits account owners to invest retirement funds in a qualified LLC.
3) While rolling your retirement money into a non-traditional custodial account, instruct your attorney to set up the LLC. The Self-Directed/ IRA will own the LLC. Create a name for the LLC. Your role is to serve as the LLC’s non-member manager.
4) Open a business checking account in the name of your IRA/LLC.
5) After you open the bank account, instruct the non-traditional custodian to transfer the funds into the business checking account.
Once you have the Self Directed Real Estate IRA/LLC in place, if you do not have a foreclosures to purchase right away, you can transfer the funds to a traditional brokerage account to until you find a suitable investment. When you use a Self-Directed/ IRA for foreclosed homes investing, remember to never take title to foreclosure homes in your name.