Buying Real Estate with an IRA Investment

Real estate is currently experiencing a 30-year low in many markets, a fact well-documented in publications such as the Wall Street Journal, New York Times, and numerous others. Interestingly, large Wall Street companies have been shifting their investments from stocks to real estate due to the better returns it offers. The question then arises: why do most Americans still place their trust in the stock market for their retirements, IRAs, and 401ks? The answer is simple – many people may not be aware of better alternatives, such as using an IRA Investment for real estate.

A quick reminder: We are not financial advisors, and this guide does not constitute financial, tax, or legal advice. It is for informational purposes only. It is advisable to consult your professional advisors before making any financial decisions.

The Self-Directed IRA for Real Estate

The Self-Directed IRA is an option that has been available for some time. However, in recent years, many individuals have recognized that their IRAs are not generating substantial returns, and in some cases, are even losing value. As a result, people have begun seeking alternative IRA investment strategies to make their IRAs more profitable.

Enter the “self-directed IRA”.

With a self-directed IRA, you can invest in a variety of assets, including:

  • Real estate (commercial, income-generating rental property, rehabs, etc.)
  • Promissory Notes secured by mortgages (i.e. – private lending)
  • Tax lien certificates
  • Limited partnerships
  • LLC’s
  • Sub-C corporations
  • Real estate options
  • Some types of precious metals
  • … and the normal investments like stocks that your normal IRA can invest in

This flexibility allows you to diversify your investments and potentially earn better returns. However, there are some restrictions and considerations, so it’s essential to understand the rules and work with a qualified custodian.

Are There Restrictions?

Certainly, there are restrictions and guidelines to be aware of when investing in a self-directed IRA (SDIRA). These restrictions are in place to ensure compliance with IRS regulations and maintain the tax-advantaged status of the IRA.

A custodian? Whats that?

Great questions.

Self-Directed IRA Custodians

The US Government introduced the self-directed IRA (SDIRA) option to provide investors with greater control over their investments while preserving tax benefits. However, they also implemented safeguards to prevent misuse of SDIRAs.

To maintain this balance, a crucial component is the custodian. The custodian, typically associated with the Self-Directed IRA company you choose, serves as an intermediary when making investments. These custodians often establish investment guidelines, approval processes, and timeframes for your funds to be deployed after approval. Some custodians offer a more hands-off approach, allowing you to use a checkbook directly from your SDIRA for investments.

It’s important to conduct your research and identify the custodian that aligns with your investment objectives. Here are a few respected custodians you can consider:

Do some research to find the right fit for you.

Some have more expensive fees than others… and some give more flexibility than others.

What To Ask A Self-Directed IRA Company Before Buying Real Estate with an IRA

Prior to committing to a self-directed IRA (SDIRA) company, it’s wise to inquire about essential aspects.

  1. What are your fees? – Fee structures can significantly vary. Some impose an annual fee based on your account’s value, others charge an annual fee, and some have substantial setup fees. Be sure to determine which fee arrangement aligns best with your needs. The idea is that, by using an IRA investment for real estate, the increased returns should more than compensate for the fees you pay.
  2. What’s the investment approval process? – Approval timelines can differ significantly among companies. While some SDIRAs adopt a “true checkbook control” approach, enabling you to write checks directly from your IRA account, offering swift access to funds for prompt deal closure, others may involve a lengthier custodian approval process. It’s important to explore the most suitable process for your situation.
  3. Are there investment restrictions? – I aim to invest in real estate and extend private loans. – Some larger, more conventional companies such as Schwab and SmithBarney might impose constraints on the types of investments your account can make. Some may not permit an IRA investment for real estate, while others may be more flexible. Always seek clarification.
  4. Can my retirement account be rolled over into an SDIRA? – Not all retirement accounts are eligible for rollovers into self-directed IRAs. While most IRAs can be transferred, and even some 401(k)s may be eligible, consult your financial advisor and inquire with the SDIRA company you plan to work with.
  5. How long does it take to have my account operational with available funds for investment? – Some individuals delay the process unnecessarily. If you’re interested in using your IRA investment for real estate, begin the rollover process into an SDIRA as soon as possible. Specific companies may take several weeks or even more than a month to complete the account setup and have it ready for investment. Avoid waiting until you find an ideal real estate opportunity; commence the process promptly to ensure your funds are ready when needed.

Getting Off The Sidelines And Getting Your Money Working For You

Should you believe that a self-directed IRA investment offers an excellent opportunity to invest a portion of your retirement savings in assets you understand (instead of the unpredictable stock market), consider delving deeper. Dedicate some time to educate yourself about the advantages and disadvantages of SDIRAs. Those websites I mentioned earlier provide valuable resources to enhance your understanding of self-directed IRAs and their potential for real estate investments.

If you have any questions on how you can work with us as an investor… just connect w/ us through our contact form or call us anytime at:  (541) 554-4633.  We offer discount investment properties in Eugene and surrounding areas to investors like you who often buy them and keep them as rentals.  Also, for those qualified investors who want to explore private lending… contact us and we’ll talk about how we work with private lenders as well.

Happy investing!  We’re here as a resource for you so don’t hesitate to connect with us anytime.