How to Invest in Real Estate with an IRA: A Beginner’s Guide

Real estate holdings in IRAs are a favored strategy individuals use to build wealth for retirement. There are experts out there that can invest in these assets while blindfolded, but many others are unsure how to get started. If you fit into the latter category, this article’s just for you. It’s a beginner’s guide you’ll find handy to learn how you can invest in real estate with an IRA to earn tax-sheltered income for your future.                         

The term “real estate IRA” is used to describe self-directed retirement plans that hold real estate assets. A self-directed account gives you the right to choose your own investments. You don’t rely on a third party to make decisions for you. You are not limited to the stressful world of stocks or the boring realm of bonds and mutual funds. You are free to invest in alternative options like private equity and precious metals, but for the sake of this article, we’re going to focus on real estate investing.

What’s so special about real estate investments?

Real estate delivers diversity to your portfolio by way of a hard asset that has the potential to earn income at a faster pace than traditional assets.

Additionally, this asset class covers an incredibly broad spectrum. Residential and commercial property, rehabs, rentals, private lending, land, and even tax liens are common examples.

Top 3 Popular Ways to Invest in Real Estate with an IRA

Rehab-and-flips are at the forefront. Many people enjoy today’s reality TV shows that give real-life examples of how rehabs work—and the process is nearly identical when you invest with your IRA. The only difference is your IRA owns the property and must pay for all expenses of the rehab. One expense is hiring third-parties to perform the renovations. As the IRA owner, you cannot personally perform repairs on the property. This is considered sweat equity, which is prohibited in an IRA. Upon the sale of the property, all proceeds are deposited directly into your account without incurring capital gains or other taxation.

Rental property is a favorite to achieve a steady flow of income over time. Monthly rent payments are deposited into the IRA, tax free. Here again, expenses must be paid with IRA funds. You also have the option to sell later when the property has hopefully appreciated, presenting another boost of tax-sheltered income.

Private lending creates diversity and earns income on interest payments. This is an ideal transaction for borrowers seeking mortgage financing. Your IRA plays the part a bank would in extending loans to borrowers that you fully vet. Principal and interest payments are made to the IRA, but you call the shots on the terms of the security of the loan and the repayment details. The property is held as collateral in case of default, and can then be sold for additional profit.

Get Started Investing in Real Estate Today

  1. Choose a plan administrator. Make sure you work with a firm, such as Advanta IRA, who has experience in dealing with real estate transactions. Advanta IRA handles hundreds of these investments a year, ensuring the administrative details comply with IRS rules. You’re paired with a specific client account manager who provides concierge-style service and guides you through each investing process.
  2. Open your account. You can self-direct traditional, Roth, SEP and SIMPLE IRAs, solo 401(k)s, health savings accounts, and education savings accounts. Advanta IRA makes it easy to open your account on our secure online portal, or you can download and mail completed forms to our office.
  3. Fund your account. Transfer or rollover funds from an existing IRA or 401(k). You can also make a cash contribution, keeping in mind you can’t exceed the annual contribution limits of your plan. You can also move funds from a 401(k) that’s still housed with an old employer into a self-directed account.
  4. Start investing. Now that you’ve gotten everything in place, you can begin looking for real estate to invest in. It’s that easy.

Want a beginner’s bonus? If you find a promising asset but lack adequate funds in your plan make the purchase, your IRA can partner funds to invest.

This is an excellent strategy to score more lucrative holdings and also to offset expenses related to asset. You can partner self-directed funds with your personal funds, and/or with another person or entity to invest in real estate. Ownership is assigned based on the percentage of the buy-in each investor contributes. Expenses are divvied up in the same manner.

If you want to learn more about how to invest in real estate with an IRA, download this free eBook: Real Estate IRAs Made Easy. You’ll get in-depth information and a better grasp of how these assets can work for you.

Prefer to talk to a real person? Schedule a free consultation to discuss your options with Advanta IRA today.

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About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.