Self-Directed Real Estate IRA

Real estate prices are at historic lows and now is a good time to consider adding this type of alternative investment to your self-directed IRA.

130304130832-home-price-forecasts-620xaOver time, the returns you gain will be worth the wait. Your IRA will benefit from both the appreciation of the investment property and the income-earning potential it offers. Investments are secured by property and provide diversity in your retirement portfolio that can be safer than traditional investment vehicles such as stocks or mutual funds.

You can purchase a property, renovate and flip it for a quick return or hold the property for several years in your account to make a profit through rental income. The choice is yours to make!


FAQs about self-directed real estate IRAs


Who owns the property purchased by my IRA?

Your IRA owns the property, not you. All documents, legal or otherwise (including the offer, contract and title), must be written to reflect the IRA’s ownership of the real estate asset.

Can my IRA partner with someone or borrow money to purchase real estate?

Your IRA may partner with another IRA, person or entity. Provided the partner is not a disqualified person, pooling funds to invest in real estate this way eliminates the need for acquiring other loans, increases purchasing power and lowers the risk factors that are present with any investment.

Your IRA may obtain a loan to help purchase real estate. Loans for this purpose must be non-recourse, meaning you (the IRA owner) are not allowed to personally guarantee the loan, thus, your self-directed IRA is not eligible for traditional mortgage loan financing. When leveraging a mortgage this way, your IRA may become subject to Unrelated Business Income Tax (UBIT). Discussing this with an income tax professional is crucial before making this decision.

Can I perform repairs or maintenance on real estate in my IRA?

No. Doing so would be considered “sweat-equity” and a contribution to your account. Sweat equity cannot be measured in value and the IRS only permits contributions to an IRA to be made in cash. Repairs and maintenance must be paid for at current market rates and must be performed by a third party who is not a disqualified person.

Do I have to hire someone to manage the property?

No. Property management can be handled by the IRA owner, but you must not perform sweat equity or pay for expenses out of your own pocket.  You can also hire a 3rd party property manager if you wish. All income and expenses flow directly in and out of the self-directed IRA funds, not your own.

How are income and expenses attributed to my IRA?

All income and expenses associated with the real estate investment must flow directly in and out of your IRA. Rent checks and other income must be written to the IRA and deposited directly into the IRA account. Expenses must be paid by the IRA and not by you personally. Income or expenses are not allowed to flow through the IRA owner for any reason. It is crucial that you plan for any expenses in advance, so your IRA is prepared to cover them. If you have partnered on a purchase with other parties, your IRA only pays for its percentage of repairs and must receive only its share of income.

Can I sell property to my IRA?

Your IRA is not allowed to purchase real estate from you or from another disqualified person. Your IRA is also not allowed to sell the property to you or a disqualified person. Such actions are deemed prohibited transactions and could cause your IRA to suffer heavy penalties or even disqualification.

Can I vacation in the rental property owned by my IRA?

No. Investments made by your IRA are to be realized at your retirement and not before. You (or any disqualified person) are not allowed to utilize the real estate investment in any manner. For example, if you have purchased a rental property in a popular vacation area, you may not vacation in that property. Doing so would be deemed as your receiving a current benefit and can cause penalties or disqualification of your self-directed IRA.

Call us today so we can answer all your questions about self-directing investment options you have in mind. Advanta IRA has regional offices in Fort Myers, Miami, Gainesville and Tampa, FL; Atlanta and Thomasville, GA; and Newton, MA. To locate an office near you visit our Contact Us page.

To get started earning tax-deferred or tax-free income within your IRA by investing in real estate, attend one of our free workshops or contact us today!