Real Estate in Your IRA?

If you haven´t heard about buying real estate inside your IRA, your first reaction might be, "You can´t do that!"  Despite the attention, including articles in Business Week (Nov. 18, 2002; Aug. 2003), The Wall Street Journal (Dec 18, 2002; Jan 15, 2003), and other publications, many investors today still do not realize they can invest their retirement plans into real estate.  Many feel "trapped" in their stock market investments due to common misconceptions about the types of investments that are permitted within IRAs and other retirement plans.

It´s all about the Custodian

The widespread misconception that permissible IRA investments are limited to stocks, bonds, mutual funds, and Certificates of Deposits is a result of people and companies who are in the business of selling these products.  The IRS requires that you have an approved custodian for your IRA or other retirement plan.  The IRA custodian for the vast majority of investors is a bank, brokerage firm, or mutual fund company ? the companies who are in the business of selling investment products.  These custodians simply choose to limit your IRA investment choices to the products they sell.  The widespread misconception is that these limits are placed on IRA investors by the IRS, which is simply not the case.  The IRS rules permit you to invest your IRA into real estate, lend your IRA as a mortgage loan and many other alternative investments  - AS LONG AS YOU HAVE A CUSTODIAN THAT IS WILLING TO ALLOW THESE INVESTMENTS! 

A truly self directed IRA administrator does not sell any products, does not give investment advice, and does not limit your IRA investment options.  With a truly self directed IRA you are able to "Unlock Your IRA" and invest in rental property, rehabs (fix up & sell), commercial property, raw land, lease purchases or virtually any other form of real estate.  All of the income from the investment goes back into your IRA and all of the expenses of the property are paid from the IRA, all without any taxes!

The "Rules"

An IRA is designed to save for retirement, and the IRS has certain rules to prevent an investor from using the IRA assets for a current benefit, which is called "self dealing."  A truly self directed IRA will allow you to invest into real estate, but the IRS "self dealing" rules prohibit certain types of transactions. 

You Can:

-        Self Direct a variety of retirement plans.

-        Invest your IRA in Residential, Commercial, Rentals, Rehabs, Raw Land, or any other type of Real Estate

-        Partner your IRA with yourself individually, or anyone elses IRA as Tenants in Common

-        Leverage an IRA investment with certain types of mortgage loans

-        Roll over assets from an employer plan or other IRAs into a self directed IRA in order to invest in Real Estate

You Can´t:

-        Invest your IRA into Collectibles ? Artwork, Antiques, Rugs, Gems, Stamps and all collectibles are prohibited IRA investments.

-        Live in a property owned by your IRA - it must be for investment purposes only

-        Have a transaction (buying, selling, leasing,etc) between your IRA and a disqualified person.

o      Disqualified persons include: yourself, your parents, your kids, spouses, and businesses or trusts that you control; i.e.  You can not sell property from yourself to your IRA.

-        Pledge the assets in your IRA as collateral for a personal loan

-        Personally guarantee a loan to your IRA

-        If you operate a business from inside your IRA or have debt financed income your IRA may be subject to UBIT tax

How does it work?

The Self Directed IRA Administrators we work with make the process very simple and surprisingly inexpensive.  Here is s summary of how you can get started

1)     Open a self directed IRA Account

2)     Fund the Account through a contribution or transfer from an existing account

3)     Find an investment property that suits your needs and goals

4)     Direct the IRA Administrator to purchase the property inside of your IRA