Rental Property in an IRA

Rental property is a popular investment in self-directed IRAs. Investors use these assets to produce consistent income that grows on a tax-sheltered basis in their retirement plans.

A sound investment in real estate can appreciate over time, and rentals can be sold to achieve additional retirement income.

Rental property includes residential homes and commercial buildings. You can also use townhomes, foreign property, and land as rental assets.

Guidelines for Rental Property in an IRA

  • Your IRA purchases the property, and it’s titled in the name of your plan.
  • Rentals are for investing purposes only and may not be used by you or any other disqualified person.
  • As the account owner, you choose the property, but you cannot purchase it from a disqualified person or entity.
  • All expenses are paid with IRA funds; all income must be deposited straight into your IRA.
  • Unless you formed an LLC in your IRA to purchase the rental property, you must hire a third party to manage it.
  • Never pay for anything relevant to the asset with personal funds.
  • You must hire a third party to perform maintenance and repairs. You may not undertake these tasks yourself—doing so is considered “sweat equity” and prohibited by the IRS.

Tips:

  • Make sure your IRA retains enough funds to cover expenses of the asset after purchase.
  • You can partner your IRA’s funds to invest. Income and expenses are determined on the percent of ownership of each party.
  • Your IRA can also use a non-recourse loan to leverage investment buying power. Consult an appropriate professional when making this move to help you navigate the requirements of doing so.
  • Performing due diligence is key in finding a property with the potential you’re looking for. It also helps you avoid fraudulent investments.
  • Work with a realtor who has experience with self-directed investing.

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