Real Estate Investment in IRA

Buying Property Through a Self Directed IRA

A real estate investment in IRA is a sure way to take advantage of the foreclosure crisis. Getting the best price for bank foreclosures involves coming up with cash. And where is the most likely place people have cash? An IRA or a 401k.

To do a real estate investment in an IRA you will need to follow certain rules or risk having the IRS slap you with severe penalties (e.g. invalidate your IRA). There are certain prohibitions to be aware of:

• you cannot buy real estate for your personal residence or a vacation home


• you cannot buy or sell to family members


• you must pay for property expenses from the IRA and will need a property manager


• you cannot loan yourself money from your IRA to buy property


• you cannot sell property that you already own to your IRA

However, you can lend other people money for a real estate investment in IRA and you can combine IRA funds with other people to buy real estate.

Using a Roth IRA to invest in real estate is probably the smartest move, since the profits will not be taxed. When you own property in an IRA you do give up many of the tax benefits - you cannot claim depreciation, for example.

Only certain IRA's can be used for a real estate investment in IRA. These are self-directed IRA's. A handful of companies deal with self-directed IRA's such as:

• Pensco
• Equity Trust
• Entrust

Do a google search to find more "self directed IRA custodians". Fees vary quite a bit as do the services that each of these firms offer. Some custodians will set up your account as an LLC, but these have much higher fees.

Do you have a 401k from a job you have left? Do you know that you can roll that over into a self-directed IRA? Do you know others that are interested in real estate investing and have an IRA? Real estate investing in IRA is attainable by a large majority of people since so many people have 401k's from old jobs or know someone who has left a job. Network with friends and family and you will find many that are interested in rental property investing. You can buy land, houses, apartment complexes or commercial real estate.

Buying foreclosures with a self directed IRA is a perfect use of IRA funds. You will have quick access to cash (much faster turnaround time then applying for a loan). Cash is king in the current real estate market.

You must make the real estate purchase in the name of the IRA or IRA/LLC entity. All expenses must be paid by the IRA, so check how much your custodian charges for check writing.

The self directed IRA custodians that I have dealt with have very good resources to protect you from making a prohibited transaction. Check their websites and call your account manager to double check any purchase that you make.

One caveat is if you need financing to purchase real estate. The tax code makes this more complicated, but it is doable. Something called UBIT (unrelated business income tax) will require additional paperwork. So the best strategy if you don't have adequate cash in your IRA is to buy a partial interest (tenant in common interest).

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