Real estate IRAs are a great tool investors use to build tax-sheltered retirement income. Investments include residential and commercial property, rehabs, rentals, foreign assets, raw land, farm land, timberland, and much more. Interested? Learn the simple steps to invest in real estate using a self-directed IRA.
Steps to Invest in Real Estate in Your IRA
1. Open a Self-Directed Retirement Plan with Advanta IRA
- Work with your representative at Advanta IRA to choose a self-directed plan.
- Fund the account by making a transfer or rolling funds over from an existing account, or make an annual contribution to your account.
- Your Advanta representative will guide you through this process each step of the way.
2. Look for Investment Real Estate
- Decide what types of real estate you want (single family home, duplex, condo, etc.), the location, and define your goal (rental, rehab, buy-and-hold)
- Perform due diligence on the property (inspections, appraisals, etc.).
- If investing in a rental or a rehab project, make sure the IRA has enough funds after purchase to pay expenses associated with the asset.
- Know your IRA cannot purchase property from you or a disqualified person. This is an IRS prohibited transaction you must avoid.
- You can use a realtor to help locate investment property. For a list of some who are familiar with self-directed investing, visit our Professional Resources page.
3. Understand the Purchase Process
- The contract to purchase must list your IRA’s name as the buyer. Advanta IRA works with you to make sure this proper wording is on the contract.
- A representative of Advanta IRA signs the purchase contract on behalf of your IRA, but you must approve it first.
- Any deposit on the property must be paid with IRA funds.
- Advanta IRA works with the title company and any relevant party to ensure closing documents are properly titled in the name of your IRA.
- You review and approve all closing documents; a representative from Advanta IRA signs on behalf of your account.
4. Your IRA Can Partner Funds to Invest
- Your IRA can partner with your personal funds to invest.
- Your IRA can partner funds with a business entity, another IRA or person.
- Income and expenses are determined by the percentage of ownership. (If your IRA owns 60% of the asset, it receives 60% of the income and pays the same share of expenses.)
5. Understand the Rules of Real Estate in Your IRA
- All expenses related to the asset must be paid with retirement funds.
- All income (e.g., rental checks, sale proceeds) flows directly into your retirement account on a tax-sheltered basis.
- You and any disqualified persons (i.e., lineal ascendants and descendants) are unable to personally use the property for any reason.
- You are not allowed to perform work yourself; you must hire an independent third party to do so.
- When/if you decide to sell the property, Advanta IRA works with you, signs all documents, and executes the transaction on your IRA’s behalf.
Advanta IRA is a self-directed retirement plan administrator serving clients across the nation. Real estate is just one alternative asset many of our clients use to build retirement income, and our team is experienced in ensuring the administrative details are performed within IRS rules and regulations. If you have questions or are ready to get started, contact us.