Buying Real Estate with a Turbo Charged Ira

I’m about to share some information that very few Americans are aware of. It’s not that it’s a secret, but because it’s a little complicated, it’s not talked about or promoted widely. Today I’m going to explain the benefits of a self-directed IRA. I know it doesn’t sound exciting, but it really can be.

As the retirement funds you have in an IRA can be set up in a self-directed IRA and used to invest in anything (except life insurance, S-corporations and collectibles.)

DISCLAIMER:  I’m a real estate agent, not a financial adviser, so I strongly encourage you to seek professional advice from an accountant or self-directed IRA representative for more specific information as to how this type of IRA might benefit you.

There are many financial institutions to help you create a self-directed IRA but not many locally.  I feel more comfortable working with people in person, rather than companies only accessible via the Internet (but that’s just me.)

My purpose here is to give you an overview of a self-directed IRA and then you can conduct further research to see if this works for you.  I’ll be happy to give you some companies to speak with to learn more.

There are multiple types of these IRAs.  One is a traditional self-directed IRA which can own real estate property (any type – residential, commercial, land, retail, etc.)  The negative to this type is that if someone sues one property within the IRA, all the money within the IRA is exposed and at risk.

Another is a self-directed IRA set up as an LLC (limited liability company) or LLP, corporation, etc., which your financial advisor and attorney will best advise you.

There are numerous benefits to this setup, as there can be multiple owners of the same property including your self-directed IRA.  In other words, this opens the door to many different possibilities and much higher purchase amounts, all the while being able to actively manage your retirement funds with real estate as the vehicle.  The LLC/LLP/corporation also limits your liability (if you set up each property purchased individually.)

Working with your attorney, they will create an operating agreement which gives the specific purpose of the IRA (for purchasing real estate or other investments.)

The financial institution you set this up with is the trustee of the IRA.  All offers and documents must be signed by the trustee (after you’ve reviewed and approved them.)  There are other rules as well, including but not limited to:

1 – you can only purchase investment properties (you cannot buy from or lease to your spouse, children, grandchildren, parents, grandparents.)  All dealings must be arms-length.

2 – all income must be paid to the IRA and all expenses must be paid by the IRA.

3 – there must be a continuous cash balance in the IRA so that taxes, insurance, utilities and property management fees can be paid.

To establish a self-directed IRA, you need a minimum balance of $250,000 and there are no maximum limits.  In general, there are annual fees associated with self-directed IRAs and each financial institution will guide you accordingly.

The obvious benefits are that you can have more control over your funds and that the cash flow you get from your investment properties add to the appreciation of your retirement funds, while deferring taxes.  Can you see the potential?

Again, this is only an overview.  There are more guidelines and limitations but now you can see that real estate can be among your choices for investing your retirement funds.

Next week, we’re going to dip back into short sale territory with some cautionary tales when speaking to your lender and exploring your options.  This will be great information for you, even if you just pass it on to family and friends.

Have a great week!