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Are you searching for the latest information on IRA Real estate investment? Because you’re planning on using your IRA to invest in real estate? If so, you’ve come to the right place.

In 2020, most people have an IRA set up that’s used for holding mutual funds, bonds, stocks, exchange-traded funds, and other financial assets but few people realize that they can use their IRA to hold real estate.

What type of real estate can you hold with an IRA? Good question! The type of real estate that you can hold with an IRA includes commercial properties, apartment buildings, hotels, retail stores, raw land, and office complexes.

Although it might seem easy using your retirement account to hold real estate, the reality is that it’s not that easy as purchasing a few hundred shares of Tesla stock, you have to know the rules, and unfortunately, there are a lot of rules to follow when using your IRA to purchase real estate.

The good news is that it’s not difficult learning the rules that you need to know for using your IRA to hold real estate. That’s why in this article, I’ll break down all the rules that you need to know so that you are knowledgeable about everything you need to know to get started with this process.

You Must Have A Self-Directed IRA

The first thing that you need to know about using your IRA purchase real estate is that it cannot be just any individual retirement account, your IRA must be self-directed.

What does self-directed mean? A self-directed IRA is set up to hold alternate Investments by an IRA custodian, or possibly a financial institution that’s responsible for the record-keeping and IRS requirements.

When you have a self-directed IRA, it’s going to be independent of any bank, investment company, or brokerage that would normally be responsible for making financial decisions for you if it were a traditional IRA.

Keep in mind that with an IRA Real estate investment, you’re still going to need a custodian or somebody responsible for managing your retirement account including all the paperwork, financial reporting, and details related to your real estate transaction.

Think of a custodian as somebody responsible for helping to keep you from violating any of the rules regarding real estate transactions in your retirement account.

If you’ve been investing for a while, you should also be aware that there is going to be a fee that you’ll have to pay for the custodian services but that fee is well worth it considering the work that they do at helping you to do things by the book.

IRA Real Estate Investment – How It Works 

Before I do a deep dive into the rules, one important concept that I want you to understand is that both you and your IRA are two separate entities. Your IRA account owns the property that you purchase and you don’t.

This is a concept that many new investors have a difficult time understanding but, after completing your first transaction, using your IRA purchase real estate, once you look at the title, you’re going to see that it will read something like “XYZ Trust Company Custodian [for benefit of] (FBO) [Your Name] IRA.”

Understanding these rules is important because the simple fact that if you purchase real estate with your IRA incorrectly, it’s quite possible that you can disqualify your retirement account, and unfortunately all the funds in your account would immediately be classified as being taxable.

apartment building

How You Can Use The Property

Now that you understand that your IRA Real estate investment is technically the owner of the property that you purchase, it’s also important for you to know how you can use that property.

Once the transaction goes through, It’s also important for you to know that the property that you purchase is only an investment property and nothing more. Under IRA rules, you are technically viewed as being a “disqualified person”, this means that you cannot use the property as an office, second home, vacation home, or even as a place for your adult children to live.

The same rule also applies to your parents, grandparents, spouse, children, great grandparents as well as their spouses and their children.

On the topic of disqualified persons, it’s also important for you to know that you cannot purchase a multi-family property from one of the disqualified persons that I mentioned above since the IRS views this type of deal as being a self-dealing transaction.

Another important rule that you must know is that the IRA cannot purchase property that you already own so it’s important for you to take these rules to heart and learn any additional rules that your retirement account may have before you move forward with purchasing your first multifamily property using your IRA.

Inherited Tenants
Purchasing The Property

If you were hoping to finance the property that you purchase using your IRA, you need to know that most lenders will not approve a mortgage for purchasing property inside of an IRA so it’s likely that you may have some cash but that could also affect your rate of return down the road.

Let’s say that you can finance this purchase, before moving forward with the transaction you should also realize that any money that you earn from the property could be considered unrelated business taxable income (UBTI) so it’s best to carefully consider how you plan on purchasing a property using your IRA and the possible tax implications before you move forward with this transaction.

After you finally purchase a multi-family property using your IRA, you need to know that since your IRA does not pay any taxes, you’re not going to be able to take advantage of any of the typical tax deductions which come from owning real estate. You’re also not going to be able to take advantage of the other benefits that come for being a property owner like depreciation.

Yes, using your retirement account purchase real estate can offer huge advantages but there are some ups and downs to consider

If your multifamily property has maintenance issues over time, in this case, if you have to put money into your IRA to handle those expenses and it is quite possible that you could end up having to pay expensive penalties for over contributing to your IRA.

Besides the risk of potentially over contributing to your IRA, your rental property may have expenses down the road that your retirement account may not cover and could potentially drain your IRA and you may end up having to pay for those expenses out of pocket.

This is where due diligence comes into play, it’s essential to take the time to thoroughly research a multi-family property, including reviewing the rent rolls, expenses, and everything that I previously suggested in my other articles before you decide to move forward with using your individual retirement account to purchase multifamily real estate.

Selling The Property

When the time finally does come to sell your IRA Real estate investment, it’s a pretty simple process because all you have to do is request that your IRA custodian sell the property on your behalf and then once the transaction goes through, all the proceeds from the sale will go right back into your IRA, remaining tax-deferred, depending upon the makeup of your retirement account.

Key Takeaways From This Article:

  • It’s possible to purchase real estate with your IRA, but you have to make sure that it’s a self-directed individual retirement account.
  • Any property that you decide to purchase with your IRA must strictly be for investment purposes only. This means that you or your family members absolutely cannot use it for personal use.
  • In some instances, you may be able to finance a property that you purchased using your IRA but, some transactions may require you to pay cash so it’s important for you to be prepared to do so before moving forward.
  • Holding your IRA Real estate investment, or any type of real estate in your retirement account, can sometimes be a tricky process because there are red tape or tax issues to contend with. Thankfully, there are a ton of benefits that you will enjoy including an excellent rate of return and the ability to diversify your Investment Portfolio etc.

Contact Trier Capital

Are you ready to purchase multifamily real estate but you’re less excited about all the work that comes with sourcing, acquiring and managing multifamily properties? If so, the solution to the problem is to let my company do all the work for you.

Trier Capital is a private equity firm that makes it easy for you to passively invest in lucrative apartment building syndications.

Finally, you can invest in tax-advantaged real estate without having to deal with the nuance or complication of purchasing and managing a property yourself.

Our simple step-by-step process allows you to accelerate your wealth creation so you can live a magnificent life on your terms, whether that means traveling the world, spending more time with family and friends, or making an impact.

To learn more about getting started with Trier Capital, contact me by calling (630) 229-2383 or click here to connect with me online.

Erik Hatch

Erik is currently invested in projects in Florida, Texas and Kentucky totaling $79 Million. He is an accomplished leader who motivates and inspires action while at the same time, is grounded in business metrics and information that drives successful businesses.