Know Your Self-Directed IRA Investment Options for Financing Real Estate

Know Your Self-Directed IRA Investment Options for Financing Real Estate

A self-directed IRA can be used for a variety of private investment options, all of which can reap profits that will make your IRA portfolio much more robust. By making the right kind of investments now, an IRA can yield healthy benefits by the time you reach retirement age. Even within the sphere of real estate, there are different real estate and different financing options as well.

What Are Your Options?

In today's economic climate, with so many homes and properties facing foreclosure, investing in real estate long term is an intelligent and entirely cost-effective investment strategy. There are currently three ways in which you can invest in a real estate IRA: The first, and perhaps easiest way, involves a straightforward investment, where your IRA holds enough funds to cover the entire purchase cost. In this case, all expenses are taken out of the fund and all income generated goes back into it. This is best option for people with an IRA that already has ample funds.

The second option involves going into partnership with someone. In this case, the partner may invest and own some percentage, say 40%, of the property while your IRA will own the rest. In this case, the profits and expenses need to be split accordingly, between your partner and your account. If you decide to sell the property, the profits will be forwarded to your IRA and will be in proportion to your initial investment.

Getting a Loan

You can also invest in IRAs and real estate by taking out an IRA non recourse loan. In this case, the loan is taken against the property, which means that in case of default, the lender's only recourse is the property. While IRA non recourse loans may have higher interest rates and down payments, they can still help to turn a profit. It's important to remember that if you take a loan to cover 70% of the real estate purchase, that 70% is subject to taxation. The 30% owned by your IRA still has tax-deferred status. This kind of financing can still help to make your IRA more robust in the long term.

While these are some of the more popular investment options, people have invested their IRAs in many different ways. Many people have invested successfully in gas stations, shopping malls, apartment complexes, international real estate, hotels, timeshares and fallow land. However, you need to consult with a financial adviser first to see which investments will yield your IRA the most profits. You will also need to consider what you eventually want out of your IRA. For instance, if you're looking to have your own home once you retire, investing in a house would be a great option for your IRA.

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