BiggerPockets

Self Directed IRA real estate investments make good sense.  Not everyone has them, because not everyone is aware it is possible to have them.  If your financial advisors only advise you to put your IRA money into stocks and bonds, you may not know anything about Self Directed IRA real estate.

You may be someone who doesn’t have the time to spend educating yourself on other areas that the IRS allows you to invest your tax-free or tax-deferred retirement funds.  In this article, you can learn a few things about investing your IRA money in real estate.

There are eight things you need to know when considering investing in real estate with a self directed IRA.  They are listed below:

1)  Your IRA cannot purchase property that is already owned by you or a disqualified person.  A disqualified person is your spouse, parents, grandparents or great grandparents, children and their spouses, grand children and great grand children and their spouses.  There are a few others, which you can find in IRS Code Section 4975.

2)  You (or any disqualified person from the list above) cannot receive indirect benefits from property owned by your IRA, such as taking a vacation in resort property or renting office space in commercial property that your self-directed IRA owns.

3)  Your IRA needs to be titled in the name of the IRA, NOT in your personal name.

4)  The real estate in an IRA doesn’t have to be 100% funded from your IRA.  You can partner with a friend or family member.  For example, let’s say you found some property for your self-directed IRA real estate account, and you need $100,000 in order to purchase it.  However, your IRA account only has $25,000.  In this case, your friend could provide the other $75,000.  Your friend would own 75% of the property and your IRA would own 25%.

5)  If your self-directed IRA uses financing to purchase real estate, the loan must be a non-recourse loan, and your IRA must pay unrelated business income tax or UBIT.

6)  All expenses, such as maintenance, improvements, property taxes, and any other expenditures to own and/or maintain the property must be paid from the self-directed IRA.  No personal funds may be used for any expenses.

7)  All income from the IRA must also go back into the IRA account.  You may not deposit any money, such as rental income into your personal account.

8)  You will need a self-directed IRA custodian to fill out all the paperwork required by the IRS.  He or she will be very familiar with each of the points above.  Don’t let the details deter you from looking into self-directed IRA real estate investments.

There are companies out there that can help you through the entire process, even the most important part of finding the right properties to bring you great returns.  You can find your own properties, but unless you have lots of experience and you are handy at the fix-ups that many properties will need, your best bet is to leave that part to the professionals.

Michael Poggi

Millionaires Real Estate Investment Group   
PRESIDENT, INVESTOR, SPEAKER, AUTHOR, DEVELOPER