If you need to sell real estate held in your self directed IRA, you’ve come to the right place. It’s not hard, you just have to know what to do. Most real estate IRA investors need to do it at some point, whether to make a tidy profit after fixing up a run-down property or a long-term buy and hold that’s finally paid off. But, as with all IRA investments, following the rules and proper procedures is the best way to get your transaction completed correctly and with ease. Ready to begin? Read on:
Listing the Property
Like when initially buying your real estate, the sale process with IRA-owned property is a lot like doing it outside of an IRA. It’s actually often simpler than the initial purchase of the investment because there’s less room for error— the property is already titled in the name of your IRA, the structure of the deal is mostly settled and tends to be more straightforward.
But that means you (or your agent) must to make sure everything is in the name of your IRA, from any home inspections to the listing agreement between your IRA and your real estate agent. Ideally, you’ll be working with a real estate agent who is familiar with self-directed IRAs— it’s easier when you’re working with someone who already knows what to keep in mind during this process, and they can help the buyer’s agent do the same. If your agent does have questions, you can always reach out to IRAR and we’d be happy to help. We can set up a conference call and speak to you and your agent together if requested.
You or your agent will need to list your property in the usual way and prepare it for sale— without engaging in any prohibited transactions. Any repairs, staging, or inspections must be performed by an arm’s length, 3rd party (not you or another disqualified person). You can act as your own real estate agent during this process, but you can’t receive any kind of compensation or commission. Then, after an offer has been made, the terms have been negotiated, and you’ve worked out the details of the sale, you’ll be ready to sign that offer.
Once you’ve found a buyer and negotiated the details, it’s time to finalize and sign the contract.
The agent will draw up the purchase contract, and IRAR will sign on behalf of your IRA if you accept the offer. The most important thing to remember is that the contract needs to be vested like the name listed on the recorded deed. If this isn’t done, it’ll need to be revised (which can slow down the sale).
Your IRA is the owner of the property, so the property is (hopefully) currently vested in the name of your IRA.
Your property should currently be vested in the name of your current IRA (IRAR Trust Co. FBO John Doe #12345), but it may not be. This is an investor responsibility, to re-record your deed after purchase, either personally or through a service that does this for you. But if you find that your deed wasn’t re-registered, don’t panic— check the recorded deed on record to determine the official title of your investment. Use that title on the new to-be-recorded deed.
If you’re selling only a portion of your property, make sure this is shown in the new title.
For example: Say IRA investor Eric Johnson is selling 20% of an apartment complex his IRA owns to his friend, Rebecca Smith. The new deed should read:
IRAR Trust Co. FBO Eric Johnson #12345 80% undivided interest, Rebecca Smith 20% undivided interest.
This information will need to be updated on the actual deed as well as listed on all contracts and paperwork, otherwise legal ownership still lies with your IRA. This is not something IRAR can do for you. The exact requirements vary by county and state, so it’s best to confirm requirements for your situation.
IMPORTANT: Your vesting must be the same on all sale documents. To keep the transaction timely, make sure all documents are correctly vested before submitting to IRAR for processing.
Submitting Your Request to IRAR
Once you’ve compiled your offer and made sure it’s correct, IRAR needs a few documents to complete the sale.
Sell Direction Letter and Purchase Contract
- IRAR’s Sell Direction Letter
- Signed Purchase Contract
First, you’ll need to submit IRAR’s Real Estate Sell Direction Letter, along with your buyer-signed purchase contract. We’ll compare the buyer’s name, purchase price, address, and other details, so make sure the correct information is listed on both the form and the contract.
Make sure to sign “read and approved” on any page of the purchase contract that requires a signature, as this is required for IRAR to sign on behalf of your IRA. But don’t sign on the contract where a signature is required— that is where IRAR (on behalf of your IRA) needs to sign.
Once we’ve reviewed these documents, we’ll go ahead and sign the contract, then email a copy to you, the broker, and the closing company.
Additional Required Documents
To complete the sale of your IRA real estate, we’ll need a few additional documents prior to closing. Make sure we receive:
- Escrow/Title Opening Package (if applicable)
- Warranty or Grant Deed
- Preliminary Title Report or Title Insurance Commitment
- Estimated Closing Statement or HUD (if applicable)
- Escrow or Closing Instructions (if applicable)
- Buyer’s Entity Formation Document (if borrower is an entity)
IMPORTANT: You need to sign and date the any page that requires a signature as “read and approved”. Do not sign where a signature is required— IRAR must sign all documents on behalf of the IRA.
After the Sale
As with any IRA proceeds, all funds from the sale must be deposited into your IRA. Direct your buyer to deposit these funds into your IRAR account, using our delivery instructions.
The check should be made out like:
IRAR Trust Company, Inc FBO [Client or Plan Name] Account # [IRAR Account Number]
So, for example, a check for IRAR client John Smith would look like this:
IRAR Trust Company, Inc FBO John Smith Account # 12345
There is a $30 charge for incoming wires, but no charge for incoming check or ACH deposits.
Prohibited Transactions Still Apply
When structuring your deal, don’t forget the rules about prohibited transactions— they still apply, even when you’re selling your real estate! If you’re trying to get the property into your personal name without without taking it as a distribution, and the same goes for selling the property to any other disqualified person.
If you’re trying to personally own the property, see our article on in-kind real estate distributions. Once the real estate is outside your IRA, you can use it as you please.
In a Nutshell
Now you know the process for selling your self directed IRA-owned real estate. The process isn’t much different or harder than a traditional sale, keeping the same rules for investing that apply to all self directed investments. I hope we’ve cleared up any questions you may have had.
If there’s anything else you need or want to know, we’re here for you! Reach out to an IRAR representative for the answers to all of your self directed IRA questions.