When real estate is held in a retirement account, there are many benefits in financial planning for the owner.  This not only produces substantial tax savings, but also additional gains for the owner ranging from asset protection to directing income streams to assorted recipients.Is your retirement account optimized 

Depending on the tax needs and other financial planning considerations of the individual, real estate assets, whether physical property or notes from private mortgage lending, can be established in separate limited liability corporations (LLC) or other corporate structures to shelter income, protect assets, and provide additional benefits.

In a retirement account such as a 401(k) or individual retirement account (IRA), the property, such as an apartment building, or private mortgage notes can be held.  According to Jerry Cohen, President of EquityBuild, a premier private mortgage investment firm, “There are two methods for getting started in private mortgages: Mortgage Pools and Direct Lending.  Mortgage pools are like the mutual funds of private mortgages. Each investor's money is pooled with the other investors participating in the pool and the money is used for private lending.

Cohen, who was just awarded the prestigious “Moving America Forward” honor for the success of EquityBuild and EquityBuild Finance, its financial arm, furthered that, “Direct lending is typically reserved for seasoned real estate professionals due to the level of expertise that is needed to identify undervalued properties...”

Establishing a separate LLC for each property or mortgage protects that asset.  An LLC can be set up for the income received from a mortgage pool or each property, if desired.  This provides another layer of protection from creditors and others.  This could be a needed part of financial planning for the owner of the private mortgage not or property.

Other benefits are provided from real estate assets being held in LLCs  or other corporate structures.

As an example, only 75% of rental income is counted when applying for a mortgage.  That is due to traditional lenders reducing the amount received by one-quarter to account for vacancies, expense, and other factors that reduce the rent from a property.  But if the rent from a property were paid to the LLC owning it, that money could then go to the owner in the form a salary.  That way 100% of the rental income would count on a mortgage application, increasing by one-third the amount of properties that could be bought from that source.

Setting up a property or a private mortgage note as a single-entity LLC can allow for it to be divided among different owners.  If you have several retirement accounts under your name, each could own a share.  Or the property or private mortgage held in a single-entity LLC could be owned by a number of partners through the retirement account of each.

Depending on the needs and desires of the owner, there is a vast range of benefits that will result from an equally wide array of structures for real estate assets held in retirement accounts.  Establishing these corporate organizations should only be done after consultation with tax and legal advisors so that the formations are optimized to achieve the desired goals and objectives of the owner(s).  Properly structured, these entities will maximize the gains from real estate assets, whether properties or private mortgages, that are held in retirement accounts.