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Using Your Self Directed IRA to Purchase Real Estate

Purchase a home with IRA

home-purchaseDid you know that you can purchase investment real estate with your retirement funds?

Real estate can be held within an IRA/401(k). I’ve recently attended a seminar on self-directed IRAs with The Entrust Group and I would like to share with you what I learned.

Many investors don’t realize that they can use retirement funds to buy investment property. Real estate is an option for IRA investing if you use a custodian that is capable of holding the asset. You have to use a custodian that administers self-directed retirement accounts.

Under a self-directed plan the client determines the assets that are purchased for their IRA and they bring the investment to the custodian for purchase. Through a self-directed IRA you can invest in any type of asset that the IRS allows, including Real Estate, Mortgage Notes, and Closely Held Stock.

Many people do not recognize such assets as options for their IRA because large brokerage companies do not offer them. Brokerage companies sell products (securities, mutual funds, annuities, etc.) and therefore they limit your investment options to what they are licensed to buy and sell. To hold real estate, you have to use a custodian (such as Entrust) that offers truly self-directed accounts and does not work on commission or give financial advice.

Any type of real estate can be held in an IRA as long as it is purchased strictly as an investment. You can transfer/roll a portion of your IRA/401(k) over to a self-directed IRA custodian and then instruct them to purchase real estate in the name of the IRA. When the property is sold, the sale proceeds go back to the IRA account. There are no capital gain taxes because the property is owned by the IRA. It works the same as if you invested in the stock market (say shares of Microsoft) and the stock goes up in value; when that stock sells there are no capital gains because it is sheltered in the IRA. The same principles apply to real estate in an IRA. Furthermore all income generated (rent) from an IRA owned property flows back to the IRA tax deferred (similar to a stock that pays dividends).