The ability to invest in a range of assets including real estate is the primary reason why people opt for a self directed IRA. Real estate is a lucrative investment option and it would be rewarding to have some money from your self directed IRA portfolio invested in this class. If you are among those who have a knack of spotting the right deals in real estate, go for a self directed IRA and reap following advantages:

Multiple real estate investment options:

For those investing in a self directed IRA, there are several real estate investment options to choose from. For instance, you may invest in raw land, commercial property, any type of residential property including apartments, duplexes, condos, mobile homes, or invest in real estate notes, real estate purchase options and even tax liens. Rental income generated from the property would be transferred back into your IRA account tax-free!

Buy property in foreign lands:

The property that you can buy need not necessarily be in your home country. If you are one of those who can spot opportunities globally, you can also buy a property in a foreign land. Again, the money that you earn by selling the property can be repatriated tax-free.

Buy Your Retirement home:

With a self-directed IRA, you can also purchase your dream home at today’s prices, rent it out until you are ready to move in.  At that time you will distribute the house out of the IRA and into your hands.  This strategy can be done in one tax year or you can distribute a percentage of the house for a number of years and help equalize your taxes due on the distribution.  Most people think distributions have to be in cash only and this is not true.

Using leverage (borrowing):

If your self directed IRA does not have enough cash to fund the purchase, it is allowed to borrow the difference.  At Self Directed Retirement Plans LLC, we properly structure your self directed IRA to be in a legal position to use leverage.  Your plan can borrow from private sources or commercial banks.  In either case, the loan has to be a “non recourse loan”.  Non-recourse means you or other disqualified persons to your plan cannot guarantee this loan.  The lender is not allowed to ask for these guarantees – they are lending on the strength of the transaction.  There aren’t limits but commercial banks making these types of loans will generally want 30 to 50 % down from the self directed IRA.  It is important to remember you can’t borrow from yourself – just think of your money and the self directed money as water and oil – they can’t be mixed.

Rules to follow while you invest in real estate through your self directed IRA

It is important that you follow the IRS rules, while you invest in real estate through self directed IRA. Otherwise you may face a situation wherein your account is disqualified and you may be liable for hefty penalties.  At Self Directed Retirement Plans LLC, we encourage our clients to contact us if they have any questions about real estate investing with their self directed IRAs.  If you are aware of the prohibited transaction rules and the disqualified person rules, you should be fine.

Self-dealing is one of the prohibited transactions and the most popular mistake made.   Your self directed IRA is a vehicle designed to increase your retirement funds for the future. It is not designed for you to receive an immediate benefit.  If you keep that in mind and call us if you are not sure, then you should stay on the good side of the IRS.

* An important rule to remember while investing in real estate is: disqualified person to the IRA cannot live in the property that you invest in through your self directed IRA. You and other disqualified persons may choose to stay in the property only after you have taken distribution from your IRA by transferring the house in your personal name.

* Any expense related to maintenance of the property ie. taxes, management fees, HOA’s, etc has to be paid from the funds available in the IRA. You are not allowed to directly contribute towards the expenses on the property owned by the IRA – this is another example of a prohibited transaction.

Take Advice

Investing in real estate with your self directed IRA can be very rewarding.  In most cases you already understand the role of a realtor, appraiser, title company etc.   Using this experience alongside self directed rules; real estate investing is a not difficult.  At Self Directed Retirement Plans LLC, we assist our clients to understand rules pertaining to different types of self directed IRA investing including Traditional IRAs, Roth IRAs and even Solo 401(k)s.

At Self Directed Retirement Plans LLC. we pride ourselves to take the extra steps to help our clients year after year.  We believe this sets us apart from other companies who do not encourage questions or will not answer investment questions.