A real estate IRA is a self-directed individual retirement account (SDIRA) that you can use to hold real estate as an investment. As with regular IRAs, you can open a Traditional, Roth, SEP, or SIMPLE self-directed IRA. Unlike regular IRAs, however, you directly pick, buy, and sell real estate assets in your account.
When it comes to real estate, investment options include single and multi-family homes, commercial and rental properties, mortgage notes, international property, land, and more. Also, you do not need to cash out your IRA and pay taxes because real estate is an allowed investment in IRAs.
To invest in alternative assets, you need a self-directed IRA, and the IRS states that you must invest via a passive third party. Many investors choose a custodian because of the protections that come with additional oversight. You tell your custodian what you want to purchase, and the custodian makes the transaction on your behalf.With a self-directed IRA custodian like IRAR, the annual fee is charged by the asset so that, as your properties increase in value, the fees don’t increase with them. As long as real estate assets are in your self-directed IRA, you generally do not have to pay taxes on the income generated. For example, rental income that goes directly into your IRA is tax-free or tax-deferred (depending on account type). However, if you use a non-recourse loan to buy real estate, the debt financed portion of profit is subject to tax. Learn more about real estate taxes.
While you can purchase properties outright, you do not need to have the full purchase amount in your IRA to buy property. You can use your IRA to get a non-recourse loan to buy investment properties or bring in another IRA or individual(s) to partner on the investment.
Another way to substantially save on fees is to open an IRA LLC. Often called a Checkbook IRA, an IRA LLC is considered one asset with IRAR, meaning you’re charged for a single asset, regardless of how many assets are within the LLC itself. The LLC holds multiple investments, while IRAR holds your LLC.
These strategies can be mixed and matched in different ways maximizing your investment potential.
When it comes to investing in real estate with your self-directed IRA, there are several rules you need to pay attention to in order to avoid significant tax penalties. Per IRS rules, you cannot live or vacation in your investment property, and certain relatives cannot benefit in any way. You also cannot sell, exchange, or lease property you already own to your IRA.
Investors must keep enough money in the IRA to cover expenses like taxes, insurance, utilities, repairs, and more. For example, if your property needs a new roof, the funds must come from your IRA to pay a contractor—you cannot do the work yourself. And while you do not need to hire a property manager, you’ll want to consider whether doing so makes sense for your investment strategy.Annually updating the value of your assets is part of your responsibility. Learn more.
Fees have a major impact on your retirement account. While some custodians increase their fees as your real estate assets grow in value, IRAR charges a flat annual fee, allowing you to save more than 50 percent compared to most providers. You’ll also get personalized service from our SDIRA experts every time you call.