If you want to buy real estate using your IRA, you will need to open a self-directed IRA. Although banks, insurance companies and brokerages will help you open a self-directed IRA, they generally limit your investment options to the products they sell. To buy real estate you will have to find an independent administrator to serve as trustee or custodian.
Once you find an administrator, they will walk you through the steps needed to set up a self-directed IRA. You can fund your IRA account with new money, or you could transfer some or all of your assets from a traditional IRA.
An IRA custodian holds your assets and performs all IRA functions. IRA custodians charge from $200 a year in fees just to set up your account and hold your money. There may be additional charges every time you want to authorize a check, for example, to pay a repairman. Or you can hire an IRA adviser who’ll set you your self-directed IRA through a custodian, offer advice and attorney consultations and give you more freedom to write checks from your IRA.
Purchasing the property outright is the simplest way but your IRA can invest in real estate through a down payment and subsequent loan as long as the loan is not guaranteed by the IRA owner or any of the “disqualified persons”, and there is enough liquidity to support the mortgage and expenses.
Stay tuned for more on this topic.
Most people are Sitting on an un-tapped golden goose … their IRA or 401(k)
With today’s market conditions, and given the functions of IRAs… that is long-term investments… Real Estate and IRAs are a match made in heaven. They belong together.
Only problem is that 97% of people have their IRA/401(k) tied up with conventional IRA custodians (banks, brokerage houses, or insurance companies) who restrict the owner from certain investments such as Real Estate. However this need not be. The IRS allows for these kinds of investments. But in order to do this, the owner must set up a Self-Directed IRA.
What is a self-directed IRA?
A self-directed IRA is no different from any other IRA except that the self-directed IRA allows you to direct the investments of the IRA, in certain instances, without restrictions.
The following investments are allowed in your IRA:
1. Residential Real Estate
2. Commercial Real Estate
3. Raw Land
4. Trust Deeds/Mortgage Pools
5. Private Notes and Loans
6. Stock Offerings
7. Limited Liability Corporations and Partnerships
8. Tax Certificates
9. Stocks, bonds, Annuities Options, Futures, Currency
Note: You can move traditional IRAs, Sep IRAs, Roth IRAs, 401(k), 403(b), qualified annuities, Profit-Sharing Plans, Money Purchase Plans, Keoghs and any qualified plans into a Self-Directed IRA.
