subject: What You Never Knew about Purchasing Real Estate in an IRA [print this page] What You Never Knew about Purchasing Real Estate in an IRA
Did you come across a real estate deal, but don't have any idea how to get the funds? Is your IRA richer than you are? Have you ever thought about purchasing real estate in an IRA?
You don't have to have all of your IRA in paper investments. You can diversify your portfolio with stocks, bonds, mutual funds, saving certificates, money market funds, limited partnerships, promissory notes, and even real estate.
It's very common that investors think that they can't apply their IRA to buy real estate. They are wrong whether it be developed or undeveloped land.
Using Your Real Estate IRA to Purchase Your Dream Home before Retirement
Did you just come across a sweet deal that would be your ideal retirement home? The problem is that you can't afford to buy it now. Is your IRA richer than you are? Would you like to transfer those funds over to get your retirement home now without incurring any penalties for withdrawal? These are common questions.
The answer to purchasing real estate in an IRA that you plan on using is always going to be NO. You may not directly benefit from any type of real estate for your retirement plan. This also includes your family, fiduciary, and beneficiaries.
However, you can buy an investment property with your IRA funds and upon retirement, that IRA can be directed to you as a distribution at the current market value.
Why Haven't More People Heard of Real Estate IRAs?
This question is hard to answer. I get people telling me all the time that their CPA or financial advisor has never heard of real estate in an IRA. Perhaps there isn't enough information out there. Perhaps they don't specialize in real estate; rather, stocks, bonds, and other paper investments are their specialty.
Maybe investing in something that you know and understand sounds too good to be true. A truly self directed IRA does just that.
How to Get Started with Real Estate in a Self Directed IRA
Okay, so you may think you're on your own now, but not quite. You will have to select an institution that will help ensure that all the rules and regulations are followed for your self directed IRA. They won't advise you on what will be a good investment, but that's not the point. When you decide to self direct, you have decided to take your investments into your own hands with something you know and understand.
Even though the rules governing IRAs are strict, you are mainly guided by what you should NOT do. Here is a quick overview of the restrictions to be mindful of:
You cannot manage your own property
All expenses and profits must be returned to the IRA
No using your property as collateral
Don't let any of this deter you though. There are so many different ways to maximize your earnings without violating any regulations or rules. Always work with a qualified passive custodian when purchasing real estate in an IRA.
