subject: 6 Things You Must Know About Real Estate IRA Investing [print this page] 6 Things You Must Know About Real Estate IRA Investing
A real estate IRA can refer to either a self directed IRA or a self directed 401(k). If you would like to invest in real estate for your retirement plan, you must find an IRA custodian that not only allows real estate investing but also knows the rules and regulations.
Remember that no self directed IRA can be truly guaranteed. If someone offers a guarantee, be concerned that they are making promises that they can't follow through on. With real estate in an IRA, the returns that your investments garner really depend on your knowledge and expertise in the matter. With that being said, you won't be subject to the ups and downs of the stock market.
When you purchase real estate for your IRA, it shouldn't be much different from other types of transactions, but here are some key points to be mindful of:
Do Not Purchase Property that was Owned by a Disqualified Person or YOU
In other words, if you, anyone in your lineal descent, or fiduciary own the property, you may never purchase it for your IRA. This would be considered "self-dealing" by the IRS.
You May Not Own a Property that Indirectly Benefits You
Let's say that you purchase a vacation home on the beach that's just sitting there vacant for a couple weeks in the summer, you or any other disqualified person may not use it. That goes for office space in a commercial property, too.
The real estate IRA is intended to benefit you upon retirement, not in some way that could benefit you as a disqualified person now.
Real Estate in an IRA Must be Titled as Such
In other words, the real estate investment cannot be put in your name. It must be put in the name of the self directed IRA. To ensure there are not any delays, check all paperwork to make sure it follows this rule to the T.
IRA Expenses Must be Paid from Your IRA Account
Anything that relates to the SDIRA property must be paid from that account. This includes homeowner fees, bills, remodeling, maintenance, and property taxes.
Any Generated Income Must be Returned to the IRA Account
Any sort of payment must be deposited into your self directed IRA.
Your Real Estate Investment Doesn't Have to be Funded Completely from Your IRA
The purchase doesn't have to come outright from your investment. You are allowed to partner with others or borrow money for an investment. Remember that you can never use your IRA as collateral.
Finding the Right Person to Manage Your Real Estate IRA
It's important that you research your options before you decide on a passive custodian of your real estate IRA. Look for someone that has at least several years of experience with this type of transaction. You may also want to find someone that has an all-inclusive annual transaction fee, especially with the nature of buying and selling in real estate.
