Buying property with IRA owned company?

Not sure exactly what the question is.  Are you asking how they structure that deal for IRA rules?

No. I understand the IRA rules. I just want to know what people's experiences are and specifically how they handled the closing? Since the IRA custodian is responsible for signing the purchase of the company.  I am buying a company that hold two lots (the last of 10 that have sold to other expats. We own three of them. The owner is French and has held the properties in a company.) I am buying the company with the two lots with my IRA.  At least...that's the plan. But, can the closing documents be sent and signed state side and then returned to DR?  Or does the closing have to happen in DR??

hey brodie,i am not familiar with the ira custodian process,but when we bought in playa neuva romana their attorneys sent the sign documents to our attorney then it was sign  by us and one original was sent back with the payment.it may not be much but may be you can work from that viewpoint pugypugy

I have heard often of documents being couriered all over the place. That should work!

I think the issue is that the DR does not recognize an IRA as a legal entity and thus it cannot directly hold property and/or a company.  So, as I had learned from others I have to form a US company, fund it with my IRA so that I can invest in property in the DR as if I were investing in stocks, etc.  I know the rules and what's prohibited...  It was just going to be so awesome to simply buy the company holding the two lots we want to buy to build a rental property...so, naturally, it could NOT just work out!  Others I know have had to do the same:  Create a US company, then have it registered in DR, then buy property...just costs way more!  That's how they get'ya!  If anyone knows differently...let me know...

Can't you just withdraw your money & wire it to your account here?  Or set up an L.L.C. here & wire it to it?   Is the IRA like a HOA who can tell you what you can do with your own property?  Good luck, life should never be complicated by governments & others.

Withdrawing from an IRA triggers a  tax event Tinker and that would be a potentially very bad thing.

Yes...but then I would pay 30-40% or more to IRS.    To invest with a self directed IRA you have to keep it in the IRA and direct the custodian to invest where you choose... Once I'm 60...I can then draw on the funds, but it would be taxed as income...right now I'm trying to keep it a growing retirement account.

Good plan!!!

Thanks for the explication.   It appears that I have a very short time, a couple of weeks, possibly ony a few days before I can no longer see to post or read the forum. The same with my cell. So, if you hear nothing more from me, it is because I awoke to a grey featureless wall. To say that I will miss all of you is the understatement of my almost 79 years.  Cramming as much as I can of my net harmonica lessons. A long way to go, but getting some of the basics down. Thanks to all who have offered help with the software for the blind. It would be a huge boost to my coming days.  HEY11 Have a few beers, dance & laugh, this movie ain't over yet, just changing reels!        OH SHIT!  I'm off topic again...................

You are and you are forgiven. I have someone who can get your software installed. I hope your computer can handle it!!!! Hang tight honey.

I don't recall who said they would bring the free stuff. My laptop is old & has no Blue tooth capabilities. It is a Toshiba about 9 years old, has Windows 10. I'm not a techy by any measure at all. Don't buy no name toilet paper,..... your fingers push right through!

John sent it to me. I need to check the specs. No worry Tinker.

brodies2013 wrote:

I've heard quite a few people are using their IRA to purchase property via a company formed in DR or formed in US but registered in DR. Does anyone have personal experience with this process?

If you figure out how it is done, please share on the forum. I checked with Fidelity Investments (who has my IRA account) and they will not touch that situation. This is what they sent me:
IRA funds are tax-deferred. If you purchase real estate with an IRA improperly, you can disqualify the IRA, making all the funds taxable. You cannot receive any personal benefit from the property – you can't live in it or use it in any way. The real estate owned by your IRA must be strictly for investment purposes.
Maybe, what you are hearing about is a company that you can transfer your IRA to and that company has those types of investment options available. I would think that company would have to be registered in the US to be able to offer IRA products. Please let us know if you figure it out.

Kindly... Zeus

I've been researching how to do this as an investment for two and a half years...Our situation is different in that we already have a house and another lot to build our future retirement home...this investment is never going to be used by us...you have to set up a self directed IRA that allows property investment. So you could roll over your IRA to one that you find...or part of the money... Fidelity doesn't own your account they just manage it...and make money off it I'm sure...there are a lot of ways you could slip up...I'm trying g to avoid them all and in the meantime diversify my retirement aka get some money outside of the proverbial One Basket...😉

Quest Financial is one of the highly recommended Self Directed IRAs. It is not a "check book" self directed as those can often lead to transactions that the IRS doesn't like!

Brodie has heard this...but for the benefit of others, here is the process we went through.

My husband moved some of his IRA funds to Quest and established a self-directed IRA. Working with an attorney who specializes in IRA and tax law, we created an LLC in the states with my son (my husband's stepson) as the manager.  The LLC must have someone at "arm's length" from the IRA owner as manager. The stated sole purpose of the LLC in the Articles of Organization is the acquisition and management of investment property on behalf of the IRA. The US LLC was then registered in DR so that it can legally conduct business there. The LLC established a bank account in the US funded by the Quest IRA. The LLC contracted with a legal firm in the DR to represent it in the purchase of an apartment. The LLC purchased the the property with my son, as the LLC manager, signing all the paperwork at closing and the funds were wired from the LLC's US bank account to the DR attorney. The LLC, through my son, manages the rentals and the rental income and any expenses are handled through accounts belonging to the LLC.

The rules are very strict if you want to keep the IRS happy and avoid penalties which could include forfeiture of the entire IRA balance.

Wow, now this is a good explanation. And I am assuming any deviation can  nullify the entire set up and make this money all taxable at once! 

You really want to make sure it is a solid long term investment before doing this. And the set up fees are going to be high!  Not something to be done for a US 50,000 apartment I would think.

Planner - once the LLC is established, it can be used for additional purchases anywhere in the world! We had initial start up costs of about $1500 in the US, then an additional $1500 to register in DR.  Adding in the standard costs for legal representation for real estate purchases, the entire costs were just shy of 2% of the investment. The apartment has already appreciated about 10% in the past year, and the rental income is returning about 8%.

If we decide to purchase additional properties, we'll only have the expenses directly related to the real estate acquisition. We're committed to reinvesting our income made in the DR within the country. One of our thoughts is in building affordable housing for locals. We might not be able to use the IRA funds for that as it will likely be a break even or initial loss situation.

But you're correct...it doesn't make sense for a $50k investment!

Great info.  this I am sure will help many others!   Remember that you will have some ongoing reporting expenses as well with a DR corp.

and that is a good rental return!  Good for you!

Great explanation by ddmcghee for the process. We did the same thing to buy a vacation rental property in El Cortecito/Bavaro, but used a company called IRA Trust Services to set up our self-directed IRA. W also set up an LLC so I could have checkbook type of control over the expense. Most Self-directed ITA custodians will not touch a foreign investment. They handle all of the reporting, i just report the property value that my realtor and property manager give me every year and the custodian handles everything needed to report to the IRS. Once difference is that i did not find that it required an arms-length manager as I am the Manager of the LLC in both the US and DR.

One other note about the restrictions. You also cannot do work or repairs on the property yourself and you cannot set up a credit card for the LLC, because that would be considered a form of borrowing that is not permitted under the IRA restrictions. We have a local property manager who employs local Dominicans, but beware, in the PC/Bavaro area, the going rate for property management is 25%. That being said, our net ROI after all fees, taxes, repairs, HOAs, etc, is around 3% which until recently when the stock market started surging was still okay when you also consider appreciation. It sounds like the way that ddmcghee has it set up saves them s lot of money.

You can live in the property once you retire, but be aware that when you do, you will be taxed the value of the property as if you made that much money. In others words, if your property is valued at $200,000, you will be taxed on $200,000 as income tax. We do not plan to live in ours upon retirement, but use the money from the sale to put back into another form of retirement savings, then buy something more private, perhaps along the North Shore with more liquid investments that have the same tax consequences.

Thank you for your input.  25% management fee is high, regardless of area and  3% ROI is not high enough!   If you got the management fee to 20% then it all makes sense to me.

Oh and some property management firms  like “Go Punta Cana” Real Estate are 30%

Wow that is ridiculous!

Sounds like we should move our property management business to PC!

If people don't mind sharing further....or if this is getting to into the minutia...how did UBIT factor in for people...

@ddmcghee

hi are you able to share lessons learned and legal contacts in DR?

@Expatlife4us

hi would you be willing to share any lessons learned or provide legal contacts? Thanks