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Buying Investment Homes, Land and Future Home to Retire In With a Self-Directed IRA

November 2, 2014

self directed ira

Another way to diverse your investment portfolio is by using a self-directed IRA to invest in real estate. Real estate overall has limited risk as other investments tend to be riskier with higher risks.  Real estate takes a little more footwork and involvement versus just placing your money in a ETF and hoping it has a gain.  Property is purchased in the name of the IRA account.  You can by investment properties and land.  You can buy your future retirement home, but you can’t live in the home until you retire.

Using a self-directed IRA for real estate may not be for everyone. For newbies, make sure to know the basic real estate laws and complete your due diligence.  Even if you plan to use a real estate agent to help you find properties, it’s best to educate yourself about the various real estate markets that interest you. A good article to read is 23 Federal Laws That Apply To Real Estate Sales http://realtormag.realtor.org/law-and-ethics/feature/article/2012/02/23-federal-laws-apply-real-estate-sales.  You definitely have to be financially or emotionally prepared to handle any risk. A recommended book to read is “The No-Nonsense Real Estate Investor’s Kit,” by Thomas Lucier, which can be purchased on Amazon http://www.amazon.com/The-No-Nonsense-Real-Estate-Investors/dp/0471756539.  You can also hire a financial planner who will help you set goals; a real estate broker who will find properties; an attorney who will draw up leases, purchase contracts and the like; an accountant who can review all the numbers, and a title company.

Opening a self-directed IRA or self-directed Roth IRA with a custodian or administrator who will charge a minimal fee to service the account. The custodian or administrator can help you to understand which types of transactions are allowed and which are prohibited. Self-directed IRA can also hold trust deeds, secured and unsecured notes, limited partnerships, private stock and other nontraditional investments. You can also roll over a current 401k account into a Roth IRA.

Standard conventional financing requires 20-25% down.  You will need to obtain a non-recourse loan for the balance, which normally requires 25-30% down. Just as all income from the property must go into the IRA; all expenditures such as the down payment, taxes, management fees, maintenance costs and the like must come from funds that are in the IRA. It would be best to make sure you have adequate funds in the account in case your tenant moves out and you have to cover the mortgage.  Many people have gotten into real estate and were never concerned about the risk.  They had assumed that the real estate market will go up forever; never assuming they could go upside down.

Recommended Video: How to Set Up a Self Directed IRA LLC to Invest in Real Estate

Some other articles you can read:

http://www.foxbusiness.com/personal-finance/2012/05/08/how-to-use-self-directed-ira-to-buy-real-estate/

http://www.theentrustgroup.com/self-directed-ira-basics/what-is-a-self-directed-ira

https://www.trustetc.com/self-directed-ira/faqs

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