Using a Self Directed IRA To Invest In Real Estate
Having your IRA in stocks and bonds is the traditional way of investing for your retirement, but using the IRA to invest in real estate is gaining traction. While using your personal IRA to invest in real estate is not a easy proposition like buying a mutual fund, the benefits can be much greater as long as you go through the governments hoops and regulations.
These regulations for a self directed individual retirement account can be daunting, you have to have an agent, the properties can not be used to have a cheap place for Mom while the home appreciates, or it can not be a condo at the beach that you happen to use 2 months of the year.
But if you follow the rules and understand real estate investing, a self directed IRA with real estate in the portfolio can be a great investment decision.
The Internal Revenue Code 4975 defines what are prohibited transactions for IRAs, said David Nilssen, chief executive of Guidant Financial Group Inc., a Bellevue, Wash.-based company that he says is rolling over about 200 accounts each month. Basically, any investment the IRA participates in must be for the exclusive benefit of the IRA, Nilssen said.
For instance, you can’t use your IRA to buy a home for your mother to rent because there might be a conflict of interest to act in the best interest of the IRA (eviction) should Mom fail to make the rent payments.
For the same “exclusive-benefit” reason, self-directed IRAs cannot be used to purchase a principal residence or a vacation home. They can be used to buy income property, such as land or an apartment building. The title to the property would be held by a custodian, who acts as a trustee for the account and does not offer investment advice but functions essentially as a conduit for your wishes as they relate to buying and selling. The custodian would collect rent checks, pay the mortgage and taxes and handle the other financial aspects of your ownership – for a fee. via the baltimoresun.com.
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Comment by Joshua on 10 July 2007:
The self directed IRA market is growing and gaining traction. You can learn more at http://www.TaxDeferredStrategist.com. You can purchase investment property with an IRA and defer taxes along the way.
Comment by Katie on 1 August 2007:
A great thing about working with Guidant Financail Group is that they set up with a tax attorney as a part of their service. They are the only company that will provide you with legal counsel to your questions answered by a third-party professional.
Comment by Ryan on 3 September 2007:
Self directed IRAs are catching on in the land investing community. We frequently get questions about these strategies.
http://www.landflip.com
Comment by Augie Irusta on 25 September 2007:
After much research I have found that a facilitator is not the answer and they expensive. A self-directed IRA advisor should be utilized and they are less expensive, several attorneys on staff and offer an IRS audit warranty. An excellent example is http://www.myrealestateira.com
Comment by Diane on 5 December 2007:
Investing IRA dollars in real estate can make sense with a experienced, trustworthy custodian. You can learn more about Real Estate IRAs at http://www.mtrustcompany.com. This custodian can guide you in building a team to facilitate this type of transaction.
Comment by KASH on 19 March 2008:
WHO WOULD BE THE IDEAL CUSTODIAN FOR A SELF-DIRECTED IRA TO BUY OVERSEAS LAND/PROPERTY??
Comment by Self Directed IRA Advisor on 27 April 2008:
Kash, Great question. If you are looking at investing in foreign real estate with your IRA, then it might be best to look into setting up a truly self directed IRA. We know very little about your investment situation, but it is worth exploring.
Comment by Jan on 23 July 2008:
@ KASH
I think the IRA advisers itself since they are already exposed to the matter.
Comment by will on 23 October 2009:
Besides purchasing a property outright with IRA funds or getting a Non recourse loan to finance the purchase, you could buy First Position RE Notes for the cash flow. Secured by the RE. I’ve been buying notes in my Self Directed IRA for a few years now. The custodian holds the paper that is titled into your IRA’s name.
Will