Should You Use Self-Directed IRA’s to Invest in Real Estate?

 In Property Management

Our answer is a resounding yes! Self-Directed IRA’s provide an individual more investment opportunities than a traditional IRA. Many people are unaware of the fact that you can use a self-directed IRA to purchase a variety of real estate and related assets including rental property, commercial buildings, rehabs, and notes. This is a popular investment choice among IRA owners and many of them focus only on real estate acquisition through the use of a real estate IRA.

It’s a common misconception that the only investments allowed in a retirement account are stocks, CDs, and mutual funds. Perhaps this is because the retirement industry is often dominated by custodians who only offer these types of investments. In fact, it is permissible for your IRA to invest in a variety of alternative assets — you just need a custodian that offers self-direction. The curtain needs to be lifted on this “secret” type of IRA so investors like you know they are able to leverage their money to acquire real properties, mortgages, and other non-traditional assets. This creates significant flexibility in investing options and greater control over the power of your investment. The real estate market is a good long-term investment and can often generate higher returns than the stock market.

As with most solid and profitable financial decisions, it takes time and some planning. You have to be calculated with the timing when you open the account, transfer or rollover the assets, and of course, in finding the actual investment. It can take two to three weeks to open this type of account at a typical broker’s office, and you will need to find a custodian who will hold real estate inside an IRA. The down payment must come from IRA funds, so rollovers may be required.

Know that when you find the investment and it is in contract, the party that holds the IRA account reviews and signs the purchase agreement. Then the custodian must approve it and release the funds to the title company for purchase. All of this takes time, so be patient. There are plenty of rules and regulations and it can change based upon what you are wanting to use the funds for. When it comes to the real estate side of business and getting into rental properties it might not be a bad idea to talk with someone on that side of the business. Property managers are familiar with the business they are in, as any professional should be. Sit down and have a conversation with them on their side of this transaction. Ask questions about what their dealings are, what rules and regulations they are familiar with. Letting them speak to you about past situations and how to handle things in a manner to avoid problems in the long run. There is always more than one side to any story!

We recommend you take plenty of time before making any final decisions. Know all the rules and regulations as well as the pros and cons of this type of investment strategy. Using self-directing IRA’s as a way to invest in real estate can give you all the benefits of both worlds, but it does require some homework to build a foundation that will have the right kind of long term payoff.

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