By John “Jack” F. Kiley, CPA, CISP
Managing Partner / MidAtlantic IRA, LLC
Here’s what you need to know before getting started:
- The Wholesaling Process
Wholesaling is the process in which your IRA account takes control of a property, which you have no intentions of holding, to then sell to a new buyer. To do this, you pay the owner a deposit and create a contract that outlines the specific amount you will pay the original owner within a mutually-agreed time allotment. You can then reassign your contract to the buyer for a fee, which would then be added to your Self-Directed IRA to help it grow.
- When it’s Logical to Wholesale
Wholesaling can be utilized by both large and small Self-Directed IRAs. If you are already invested in a project but come across an opportunity that you don’t want to pass up or you don’t have a large enough IRA to finance a rehab project, wholesaling could allow your IRA to grow without requiring as much time, energy or money.
- The Difference Between Wholesaling and Rehabbing a Property
Wholesaling is cheaper to start with and could have a quicker return rate, but your IRA would not gain as much profit as a rehab project might. Rehabbing costs more to get started and requires additional time and resources, but the potential reward is greater. Simply put, you’re a salesman when wholesaling and a salesman AND flipper when rehabbing.
- The Numbers
|Taxable Portfolio||Traditional IRA|
|Tax: 25% Fed. & 7% State||6,400||0|
|Accumulation in 10 Years – net of tax||20,808||35,800|
*The above table includes estimated funds for example purposes only and are not guaranteed outcomes.