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Real estate assets are among the most popular investment opportunities in self-directed retirement accounts. These investments grow tax-free in a Roth IRA or tax-deferred in a Traditional IRA. Here are some common types of investments real estate investors purchase with their IRAs:

  • Single family and multi-family homes
  • Commercial property
  • Rental property
  • Mortgage notes
  • International property
  • Land (improved or unimproved)International property

Most custodians or big banks that you may be familiar with do not offer this type of investment freedom. They offer the traditional assets such as stocks, bonds, and mutual funds. In order to make these types of investments in an IRA, you must open a self-directed IRA with a trust company or IRA custodian that specializes in these types of transactions.


5 Easy Steps to Invest in Real Estate with a Self-Directed IRA

Our process is simple and we help you every step of the way. Once you have made the decision to invest in real estate with IRA funds, here is what you need to do:

  1. Open and fund a self-directed IRA account at IRAR
  2. Identify your strategy for the purchase
  3. Instruct IRAR to make an earnest money deposit
  4. Review and approve closing documents for IRAR to fund the purchase
  5. Send IRAR all legal documents related to the property

It's important to make sure that your self-directed IRA has enough funds to cover the purchase, closing costs, etc. You also need to keep cash in the IRA to cover expenses like taxes, utilities, repairs, etc. You cannot pay for these from your personal accounts. That violates IRS prohibited transactions rules covered in section below.

All expenses for the real estate IRA must be paid from the IRA. All income generated from the property must go back to the IRA. See examples below:

  • If you need to make repairs to the roof, the contractor must be paid from the IRA account.If you have a rental property all rent checks must be made payable to your IRA: IRAR Trust FBO John Doe #123456



What Happens if my IRA Runs Out of Money to Make Payments?

If this should happen, there are several things you can do:

  • Make a contribution
  • Transfer funds from another IRA or plan
  • Get a non-recourse loan
  • Bring in a partner

Learn more about how to get more funds into your account as needed. 


Real Estate IRA Investment Strategies

While your account is being funded, you can strategize on how you will purchase the property. There are several ways your IRA can buy real estate regardless of the size of your IRA.

Here are the most common strategies of how IRAs purchase real estate:

  • Direct Purchase: Make a direct purchase using cash from the IRA .
  • LLC/Checkbook IRA: Form an IRA Limited Liability Company (LLC) funded with IRA money.
  • Non-Recourse Loan: Use your IRA to get a non-recourse loan to buy the investment property.
  • Partnering: Bring in another IRA or individual(s) as your partner in the investment.

There are many ways you can structure your deal, you just can't engage in a transaction that benefits you directly. When putting together your strategy make sure that you familiarize yourself with IRS Code 4975 that covers prohibited transactions. See section below. You don't want to break the rules. We can assist you with this process by discussing these strategies in detail. Get in touch with us. 

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IRA Rules When Investing in Real Estate

IRAs are in a tax-deferred environment—that’s what makes them such a great way to build your retirement savings with alternative investments. The investment decision is yours, but there’s a catch: For the investment to remain tax-deferred, you must follow IRS rules and guidelines regarding prohibited transactions in retirement plans. Ignoring these rules or breaking them can result in significant tax consequences to the account holder.

Top 5 Real Estate IRA Rules

The IRA owner cannot take any indirect benefit or cannot:

  1. Borrow money from your IRA
  2. Sell property to your IRA
  3. Use your IRA as security for a loan
  4. Buy property for personal use (present or future) with IRA funds
  5. Use the property yourself or allow disqualified parties or family members to use or live there

These are just some of the most common prohibited transactions that we come across.

Visit the IRS website for more detailed information about prohibited transactions and disqualified persons.

For more than 20 years, IRA Resources has been helping clients invest in real estate with IRAs. Contact us to learn how you can do the same. Working with IRA Resources is fast, friendly, easy, and cost effective.

Buying Real Estate with a self directed IRA