Is It Possible to Create a Synthetic REIT with an LLC Funded by Self-Directed IRAs?

In previous posts I’ve advocated the use of limited liability companies (LLCs) as holding companies for real estate investors.  I’ve also discussed and explained how self-directed IRA funds can be used to acquire investment real estate.

Recently on these pages, I wrote about a common real estate investment vehicle known as the real estate investment trust, or “REIT”.  REITs are, of course, a tremendous commercial real estate investment vehicle for large pools of smaller investors as they enable these investors to own a piece of a larger commercial property without the risks which accompany single ownership of such a property. 

What happens if you are an individual looking to create a REIT but do not have the number of investors needed?  Consider a “synthetic REIT” using an LLC funded by self-directed IRAs.

In this structure, a knowledgeable manager or group of managers would oversee the investment operations of the LLC.  Small investors, using their self-directed IRA funds, would contribute all or a portion of those funds to the LLC in exchange for a fractional membership interest in the LLC.  The LLC could be set up to own property, to make loans and collect interest, or to serve as a hybrid between the two types of investments.

In an era when financing for commercial real estate projects is still difficult to come by, the synthetic REIT may be an attractive financing structure for acquiring or even constructing a significant commercial property.



Posted in Blog, Real Estate Law, self-directed IRAs