In a previous post about real estate IRAs, we laid out a few guidelines regarding these nontraditional investments. Commercial and residential real estate investments are among the most popular types of investments in self-directed retirement accounts but there are many real estate-related investments that are also allowed. These include mortgage notes, tax lien certificates, limited partnerships and LLCS.

Before making any kind of self-directed investment you must first open an account and make a deposit that will get you started. If you are transferring funds from another custodian, be aware it can take up to 30 days for that to go through (even though it only takes two business days to set up your new account) so plan accordingly.

As the account administrator, Next Generation Trust Services (NGTS) manages all the necessary paperwork to make these self-directed investments according to our clients’ instructions. Let’s take a look at some of the common real estate-related investments with self-directed IRAs and the steps our clients perform to make those transactions with our guidance.

To invest in real estate

1. Locate a target investment property (residential or commercial property, raw land, rehabs, farm land).

2. You negotiate the purchase contract in the name of the IRA.

a. As with all self-directed investments, you are not the investor, the retirement account is. At Next Generation Trust Services, client John Smith’s account would be Next Generation TS FBO John Smith IRA #123

3. Fill out Section A of the NGTS Buy Direction Letter.

4. Submit the approved contract and NGTS purchase forms with deposit instructions.

5. As the account administrator, NGTS will execute the contract and submit the deposit on behalf of the IRA.

6. Do your due diligence – home inspection, title search, permits, etc.

a. It is the account holder’s responsibility to conduct due diligence and research the investment, and handle all details directly related to that investment.

b. Since all income and expenses related to the property must flow through the real estate IRA, be sure you have adequate funds in the account to cover any out-of-pocket expenses.

7. Submit all approved closing documents with escrow instructions to NGTS. We will execute the closing documents and fund escrow on behalf of the IRA.

Congratulations! Your IRA now owns the property

To purchase a tax lien

This niche investment can reap rewards for savvy investors who understand this market. Typically, the investor immediately pays back the full amount of the lien to the issuing municipality and then notifies the property owner that he is now the lien holder. The property owner repays the investor the entire amount of the lien plus interest, which can range anywhere from 5 to 36% (depending on the state). If the investor paid a premium for the lien, this may be added in to the repayment amount. Here are the steps involved:

1. Locate the tax auction you will be attending.

2. Register for the auction in the name of your self-directed retirement plan (remember, the account will make the investment).

3. Fill out NGTS purchase documents. Indicate check denominations you wish to bring to the tax auction.

4. NGTS will execute the documents and send checks to you from the IRA.

5. You attend the tax lien auction and bid as normal. You will pay with funds sent to you from the IRA.

6. Any unused funds will be sent back to NGTS and returned to your self-directed retirement plan in accordance with IRS regulations.

Investment into a real estate investment company

When applied to real estate, the entity in this type of alternative investment can be one of several types of structures. As the account administrator, Next Generation provides all the necessary paperwork; many forms are readily available on our website. The type of transaction you perform will determine the exact paperwork you must complete; our staff will guide you on what is required.

1. The client submits the entity’s operating agreement and subscription documents. As with all self-directed retirement accounts, the investor name must be in the name of the IRA (such as Next Generation TS FBO John Smith IRA #123).

2. Fill out Section C of the NGTS Buy Direction Letter (BDL) plus the Private Placement Instruction Letter.

3. The authorized signatory of the entity must fill out the NGTS Private Placement Advisory Notice and provide a certificate of good standing.

4. NGTS will execute any documents on behalf of your IRA investment.

5. NGTS will fund the investment based on your election on the BDL.

There are many ways to build a more lucrative retirement portfolio by including real estate and real estate-related investments in a self-directed IRA. Contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com with any questions you have about self-directed real estate IRAs.