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The Basics: Self Directed IRA Investing in Real Estate

Open the Door to Real Estate in Your Self-Directed IRA

Many savvy investors already know that investing in real estate can be a lucrative way to build retirement wealth. But did you know that Investing in Real Estate Using Self Directed IRAs makes up the most popular asset class to be included in self-directed retirement plans? In fact, about half of all self-directed investments today are in commercial and residential real estate.

Investing in Real Estate Using a Self-Directed IRA

By investing in real estate using Self-Directed IRAs, you free up your discretionary income for other expenses while building a more eclectic retirement portfolio. These nontraditional assets are bought, owned, and sold by the IRA, which shelters your capital gains and allows the retirement account to earn tax-free or tax-deferred income (depending on whether you open a Roth or traditional IRA). You may also open a self-directed 401(k) or tap into a previous employer 401(k) for investing in real estate using a self-directed ira if your employer’s plan allows for self-directed options.

Allowable Real Estate Investments in Self-Directed IRAs include:

  • Rental property – multi-family homes, condos
  • Vacation homes — domestic and foreign properties
  • Rehabs
  • Foreclosures
  • Undeveloped, raw land
  • Farm land
  • Mobile homes
  • Warehouses
  • Lease options

Who Should Consider Investing in Real Estate Using Self Directed IRAs?

If you are already investing in real estate outside of your existing retirement account, or you know and understand the real estate market, investing in real estate using self directed IRAs could be a great way to build a solid foundation for your retirement years.

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Examples of Things Not Allowed When Investing in Real Estate Using Self-Directed IRAs:

  • You may not live in the property or use it at any time, nor can any disqualified person.
  • Any business you own may not lease space at the property.
  • You may not do any repairs or rehab to the property, nor can any disqualified person.
  • Any business you or a disqualified person own may not do repairs or rehab on the property.
  • If you finance the property it must be a non-recourse loan. This means you may not personally guarantee the loan.
  • You may not pay any expenses relating to the property with personal funds.
  • All income and expenses must flow through the IRA.
  • If you are a real estate agent or broker you may not list the property for sale or make any commission on the sale or purchase.

[Read More About Prohibited Transactions]

The video above has additional information about how to invest in real estate through your self-directed IRA and the prohibited transactions associated with this asset class.

For a helpful checklist on Prohibited Transactions when investing in real estate using self directed IRAs, please click here.