Investing in Land with your IRA LLC
by Stan C. Strom
March, 2007

For the past few months, I have been writing articles describing my concepts of creating wealth and income by investing in land. When I host free land seminars, I talk about the concept of “seller carry-back” financing that allows you, as an investor, to split a property up to five times without subdivision requirements and achieve a higher price from future investors or users who will pay more for a smaller parcel. There are exponential buyers who can afford $5,000 to $40,000 cash down or purchase price, but it stretches their budgets to go over that amount. Therefore, I have tapped into a great source of money by introducing these smaller investors to money they don’t really know is available for their purchase of real estate. I’m talking about money they have in qualified retirement accounts such as an IRA, 401-K, SEP or Roth IRA.

Self-directed IRAs have been the subject of increasing interest in recent years because of the relative freedom such an IRA enjoys. The IRA owner has the ability to make the kinds of investments he or she wants to make whenever he or she wants to make them. In many relationships with IRA providers, the IRA owner has a relatively small say in the kinds of investments he or she can make. Choices are often limited to types of mutual funds, annuities, or other traditional investments.

You can do a roll-over or conversion into a self-directed IRA allows the owner to invest in real estate, rental properties, timberland, franchises, and a plethora of commercial real estate opportunities. Owners of self-directed IRAs can still invest in traditional assets like stocks, bonds, mutual funds, and various commodities and their IRAs are subject to the same rules that govern all IRAs. A self-directed IRA allows the owner to take advantage of any investment allowed under the law.

Companies that offer self-directed IRAs can vary significantly in how much assistance they give to their clients. Some act as un-involved custodians who simply enact the wishes of their clients without offering advice or direction. Other companies take a more active role in helping their clients spot good investments and stay within the rules of complex investments. If you do not know the advantages of setting up an LLC with your IRA, you may want to consider the latter type.

Forming an LLC for the benefit of a self-directed IRA gives the owner checkbook control over investments. The IRA owner can write checks directly from funds in the IRA to pay expenses on investments. When owning real estate within an IRA, this is quite desirable because every plumber, appraiser, painter, and landscaper must be paid directly from the IRA. If you pay out-of-pocket for such an expense, you can open your IRA up to penalties, fees, and taxes from the start of the year in which you made the mistake.

The best part about forming an IRA LLC is that the capital gains are 100% tax free and there is no minimum holding period for the investment, such as with a 1031 tax exchange or long term capital gains, provided you keep the funds in your IRA LLC.

Stan C. Strom is the owner and broker of ACRES4U Land & Development and can be contact at stan@acres4u.net or www.acres4u.net.