Deciding When it’s Time to Sell a Real Estate Holding From Your Self-Directed IRA

Estimated reading time: 3 minutes

Sell a Real Estate HoldingEven if you’re a firm believer in the value of a “buy and sell” investing philosophy, you’ll still likely agree that there are times when it’s appropriate to sell an investment from your portfolio. And given the effort and transaction costs that go into real estate investment transactions, it’s important to be confident that you exit from a real estate holding when the time is right. Here are some considerations you’re certain to make when conducting your analysis.

You Need the Liquidity.You may decide that it’s time to sell a particular piece of real estate from your self-directed IRA if you need the liquidity. Unlike other types of investments, most real estate holdings are an “all or nothing” proposition. In other words, whereas you can pare down your investments in a particular stock by selling a portion of your shares, you usually have to sell your entire piece of real estate outright in order to exit the investment.

If your financial situation or your overall investment strategy dictates that you have more cash available in your self-directed IRA, then selling a real estate holding might be the best path towards improved liquidity.

Market Conditions Have Significant Changes. When real estate market conditions change significantly, the best financial decision may be to sell your real estate holdings. For example, this might be because the relevant market for the real estate you hold is no longer strong, and you’d rather have your account funds working for you in a different asset class.

On the other hand, you might believe the real estate market has gotten overheated, and that the market value for a piece of property you hold is significantly in excess of its intrinsic value. This might dictate an immediate liquidation so that you can take advantage of the favorable market conditions.

Your Investment Assumptions Have Changed. When you used your self-directed IRA to make the initial real estate investment, you had a number of assumptions in mind. Perhaps you bought a distressed property in a location that you thought would turn around economically within the next five or 10 years. Or maybe you bought a multi-family unit based on assumptions of the cash flow it would generate for your self-directed IRA. But if you’ve found that your assumptions aren’t holding true, you may determine that it’s best to exit that particular real estate investment and direct your funds elsewhere.

Things are Going According to Plan. Finally, you simply may decide that it’s time to sell a real estate holding from your self-directed IRA because things have gone according to plan. If you initially made the investment looking for a particular amount of capital appreciation, and you’ve now reached that amount, you may choose to follow through on your initial plan to sell.

If you aren’t familiar with some of the administrative steps necessary to purchase or sell real estate within a self-directed IRA, contact Quest Trust Company today.

Check out how Quest Trust Company helps in investment decisions with Self Directed IRA. Click here to know more.

The Truth About “Checkbook Control” Over a Self-Directed IRA

Estimated reading time: 3 minutes

You’ll hear a lot of things when you start researching the self-directed IRA as a way to save towards your retirement. Some of these things will be true, some will be questionable and others will be flat out wrong.

The basic elements of a self-directed IRA are beyond dispute. A self-directed IRA can be setup either as a traditional IRA or a Roth IRA, and the type you choose will determine your rights and obligations with respect to contribution limits and tax deductibility.

Having a self-directed IRA will enable you to invest in the many asset types that are legally permitted, but which traditional IRA custodians (such as banks, credit unions and investment brokerages) do not allow. Permitted investment types include investments in real estate, making mortgage and other loans to other individuals, buying businesses, purchasing tax liens and making private equity investments.

But one aspect of self-directed IRA is that some custodians handle differently the ability to exercise “checkbook control” over your account (also known as checkbook LLC or checkbook IRAs). According to some IRA custodians, the process for setting up this type of account is as follows: the account holder directs their custodian to use funds from the IRA to purchase all of the units of a new LLC that the account holder creates, the LLC opens a checking account and deposits the funds it received from the investment by the IRA, and the account holder now has the ability to use the LLC’s checking account to make investments. The primary selling point of this structure is that the account holder can make investments quickly, without having to involve the custodian.

Unfortunately, the legal basis for checkbook control IRA isn’t one that’s explicitly set forth in the IRS regulations. Rather, self-directed IRA custodians who offer checkbook control over retirement accounts have to rely on an aggressive (some might say overly aggressive or perhaps even unreasonable) interpretation of a single enforcement case. Because the legal basis for a “checkbook control” IRA is so uncertain, individuals who pursue this type of structure are risking the integrity of the account and even its tax status. If the IRS ever issues a clear but unfavorable pronouncement about these types of IRAs, the account holders could be faced with significant penalties and tax liabilities.

Perhaps more importantly, the supposed need for checkbook control over an IRA account is based on a faulty assumption – that there’s necessarily a need for that type of access to IRA funds in the first place. Most investors take a long term investment outlook with their IRA funds, so the ability to put their account funds to work on a day’s notice is not important. Furthermore, retirements savers can choose a self-directed IRA custodian who responds quickly to their investment directives, and eliminate the need for checkbook control.

Even if you choose to take an aggressive position with your IRA investments, don’t try to push the envelope with respect to your account structure. It is prudent to stay away from self-directed IRAs that promise you checkbook control over your funds.

Quest Trust Company, Inc. is guided by a relentless need to supply the American public with the proper FREE education on what is truly possible with all retirement and qualified plans. We change people’s lives through IRA investment education and free people’s IRAs to invest in what they know best. For a free consultation, visit us at: