We’ve all heard about investing our Retirement money (IRA) in stocks and mutual funds but did you know you can also invest it in Real Estate?  Yes, you can own a house, condo, apartment building, etc inside your IRA account!  

Eligible Properties

Most important is the Real Estate must be an investment property and not a personal residence or second home.  You can’t buy a property inside your IRA that you already own.

IRA Setup Options

You’ll need to decide if the funds that you are going to invest will be from a Simple IRA, Roth or Traditional IRA, SEP, or Solo 401(k).  There’s still penalties for early withdraw if you decide to take any cash out for personal use.  As long as you leave the funds inside your IRA and buy the property inside your IRA, then all tax is deferred.

You’ll also need to decide if you want a Custodian that oversees your IRA or if you want Checkbook Control.  There are a few companies in the United States that allow these options.  

One Option holds your funds and signs the purchase contracts for you.  They disburse the funds for all expenses and rent is sent to them to deposit for you into your IRA.  This is the most common method of Custodianship.  If you have a loan they will pay it every month for you from the IRA account.

The Second Option is Self-Directed.  You sent up a LLC in the name of your IRA.  Then the IRA Custodian receives your IRA funds and sends it to the IRA LLC you set up.  That IRA has a bank account that you have “checkbook control” over for all of your IRA expenses.  This method I only recommend you consider if you are very aware of the do’s and don’ts.  Otherwise your IRA could be considered not valid and could cause a major tax issue.

Non-Recourse Loan

You can get a loan inside your IRA to purchase Real Estate!  There are a couple of banks in the United States that do these loans.  You can’t just go to your bank down the road for this type of loan.  It’s called a Non-Recourse loan because only your IRA is responsible for the payment of the loan, not you personally.  Getting approved for the loan usually has nothing to do with your credit score, or your income, or your debt to income ratio.  In fact, you can probably get approved even if you have recently had a bankruptcy.  The IRA loan is approved based on the income of the property you want to purchase and the cash value of your IRA account.  Typically you can put as little as 30% Down from your IRA and finance the balance.  The loan is paid from your IRA.  The IRA loan does not go on your credit report.

Some will say that using a Self-Directed IRA to Buy Real Estate is a bad idea.  We’ve been purchasing Real Estate Properties inside of our IRA for over 10 years and feel it can be very rewarding.  The advantage to owning Real Estate is you can always Rent it, Sell It, or Rent it as a Rent to Own.  Can you Rent a Mutual Fund or Stock?  

I Don’t Want to Manage Rental Property

That’s not a problem at all!  We can recommend some great companies that can manage your properties.  They will find your tenants, do a credit check and verify employments, and will collect the rent for you every month.  They will also manage the repairs for you.  With a great property management company, there’s not much you’ll need to do.  The rent will be wired to your IRA account every month!

What Happens when you Sell the Property

All profit from the sale goes directly into your IRA and is tax deferred until you withdraw from your IRA.  So, all rental income and capital gains stay in the account tax deferred!  

Where to go for Help

For more information, we can give you some names of IRA Custodians and the Banks that do the Non-Recourse Loans.  You should also seek Legal advice in addition to getting input from your Accountant.  There’s only a handful of Realtors that understand how to purchase Real Estate within your IRA. It’s important to work with one that has because it will be a BIG help in doing the steps and paperwork properly!  We’re here to help you if you have any questions or need help!


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