Self Directed IRA real estate is becoming a well-established investment tool.

Even with the fiscal crises strong in the memory of most, IRA and 401(K) plans are still recognized as smart investments. What many of our customers don’t realize, however, is that they can strengthen these plans even further through diversification into self directed real estate and other plans. IRA rules can be confusing because they prohibit people from managing their own funds. This leads many investors to believe that the fate of their capital is completely out of their hands. In reality, however, the rules only say that you can’t make transactions or withdrawals on your own. Setting up a self directed plan opens the door to many non-traditional investments while maintaining the ability to make investments in traditional assets like stocks, bonds and mutual funds.
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Among many options available under self-directed plans, is the investment into self-directed IRA real estate, a great way to broaden your investment portfolio. Self directed IRA real estate has a number of benefits over other kinds of investment. For one, people who invest in real estate are taking advantage of a long-term market that has the potential for growth. Real estate purchased under a self directed real estate plan has remarkable tax advantages. Rents and capital gains are deferred, or in the case of a Roth IRA, are tax-free. There is no other mechanism making available this type of pre-tax growth.
Over our nation’s history, real estate has appreciated in value while non-tangible investments have wavered. A Self directed IRA real estate plan allows the investor to invest in “what they know” and can diversify the portfolio. Self-directed IRA real estate is becoming a well-established investment tool. In fact, investors have been using their IRAs and 401K real estate plans to buy real estate since 1974. Self directed IRA real estate Plans are designed to help investors make the most of their retirement funds. We recommend that you seek more information on the subject of self directed. Consult your attorney and accountant alike and, better yet, find a Self Directed Facilitator that will establish a conference call.

IRAs are a popular retirement tool, but many people do not know that a self-managed IRA is an option. The advantage of a self-managed IRA is that you decide what to invest in, whether it be traditional or non-traditional investments.  You may choose to invest in things that the managers of a more traditional IRA will not – including real estate.  Real estate is a good long-term investment, and IRA funds are well suited for longer term investing.

What is a Self Directed IRA?

IRS Publication 590, Individual Retirement Arrangements, explains the different types of IRAs. The traditional Individual Retirement Account is one type; the self-directed one is another. You decide how the money in your self-directed IRA is invested by working in coordination with a trustee.   You become your own “wealth advocate” and will quickly find out how easy the process can be even for the less experienced investor.  Certainly there are “do’s and don’ts” of self-directed IRAs, but with the right facilitator and custodian, this structure becomes a real advantage to the investor and opens many doors once reserved only for a select few.

Why Real Estate?

Unlike stocks and bonds, real estate is, well, real — it is a tangible asset with real value that doesn’t usually fluctuate with the whims of Wall Street.  Buying rental properties, especially multi-tenant properties, provides steady income to the IRA and diversity in more ways than you might think. There is the obvious fact that you can put money into real estate, stocks, bonds and other types of investments; however, you can also choose multiple types of real estate – rental properties (commercial and/or residential), undeveloped land or even value properties that are often referred to as “ flipped” or “flips”.

Things to Know

• Be patient – Creating a self-directed IRA can take time, usually about three weeks.  Also,  many custodians don’t allow for self-directed accounts.
• Financing-  The down payment on a property can be from the IRA.  This is a great way to leverage the investment.   You should contact an IRA facilitator that can guide you towards a lender that accepts IRA loans.

• It is still an IRA – All profits from the property have to go into the IRA, and you cannot benefit from it before retirement. Also,  you cannot live in or use the property yourself.

• It is still an IRA, the up-side – The income from the real estate is tax deferred (or in the case of a Roth IRA, tax free) , and you can make other tax deductible contributions to the account, as long as you don’t go over the annual contribution limit.

• An IRA is an individual account – You have to avoid conflicts of interest, so your spouse or children cannot be part of the deal and neither can your parents or grand parents. .

• It’s not a ‘set it and forget it’ investment – All expenses associated with the property have to be paid from the IRA account.

Real estate can be a very good investment. With self directed IRA real estate investments, you can broaden the scope of a retirement plan and utilize your money the way that you want to.