USING SELF-DIRECTED IRAS TO BUY REAL ESTATE

Updated: Aug 30, 2020

Did you know that an IRA can purchase and hold real estate?


Buying real estate in your IRA could be an opportunity to diversify your retirement portfolio while investing in what you know best. In fact, an IRA can hold a number of assets outside of the traditional stocks, bonds and mutual funds. You can grow your retirement nest egg TAX-FREE when you invest with a self-directed IRA. This is another creative investment strategy that works for people who have a large nest egg and don't want to tap into yet and want to continue to grow it. This method also works for those who don't have a lot of liquid cash handy for down payments.


"Self-directed” simply means that alternative real estate investments are accepted and offered by the IRA custodian.


What is an IRA custodian? They are generally a company responsible for record-keeping and IRS reporting requirements. To expand, they are an entity with specializations in self-directed retirement accounts and help manage the transaction, paperwork, and financial reporting. Everything must flow through the custodian so as to keep you from being disqualified and having all of your gains taxable. In general, the custodian's job is to help handle all the back-office work so that you can focus on growing your real estate investment business.


A general rule of thumb when investing with a self-directed IRA is that when you are purchasing a property, you and your self-directed IRA are considered TWO separate entities. Your self-directed IRA will own the property, not YOU personally because remember that you're using your qualified retirement account to buy/hold the property, not necessarily yourself. The title to the property will read “123 Company Custodian [for benefit of] (FBO) [Your Name] IRA.”


If you need advice on how to structure your holdings, you will need to bring on a trusted real estate attorney to provide advice, most custodians don't provide this service.

Below are additional resources on IRA rules set by the the IRS:

IRS Publication 590-A: https://www.irs.gov/pub/irs-pdf/p590a.pdf

IRS Publication 590-B: https://www.irs.gov/pub/irs-pdf/p590b.pdf

IRS Section 4975: https://www.irs.gov/irm/part4/irm_04-072-011

Click on the link below to be directed to previously recorded webinars on investing in real estate with Self-Directed IRAs:

https://www.midlandtrust.com/midland-university/

Do you want to speak to our Self-Directed IRA Expert, Theresa Knower? Click here to book!


Here's a great book to read on Self-Directed IRAs:

Disclosure: The book link above is an affiliate link and at no cost to you, we will make a commission if you click through and make a purchase. Thank you for supporting our website!


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