Leverage self Directed IRA to Purchase Rental

16 Replies

@Jason James ,

You can use self-directed IRA to purchase rental property, as well as any other alternative investment such as tax liens, trust deeds, private placements, syndication, private lending, etc. etc. etc. With self-directed IRA the sky is the limit.

Of course you must be aware of the IRS prohibited transactions and be sure to stay away from those:

https://www.irs.gov/retirement-plans/plan-particip...

Selecting appropriate investment option depends on many different factors such as your age and investment horizon, your risk tolerance, investment experience, etc. For example: if you personally been investing in rentals, know how to identify good investment and manage your property manager then buying a rental in your IRA might make sense. Contrary, if you have zero experience then you might want to consider something more simple such as syndication or buying into a note fund.

Hope this helps!

@Jason James Whether it's a good idea is going to depend heavily on your situation. For many of my clients, all of whom are real estate investors, the answer is "hell yes." There are tons of perks to using your SDIRA for nontraditional investments. After all, most investors get SDIRAs with Checkbook Control because they allow us to invest in the things we understand. For those of us here on BP, myself included, that's going to be real estate. Buying real estate with this method offers asset protection, creditor protection, and even a means to buy your retirement home ahead of time. Depending on your situation, there may be some financing advantages as well.

There are several ways to use IRA funds to make a real estate purchase, but the most direct (and easiest, for many investors) is with a Self-Directed IRA LLC.

As a lawyer, I just want to add that before you make any type of investment in this fashion, get some personalized advice from a qualified attorney. A good real estate attorney who also invests in real estate would be ideal. Most pros will tell you that you CAN make this type of investment, but they won't necessarily tell you whether you SHOULD. If you don't already have an attorney, check out the credentials and reputation of any attorney you plan to retain for this purpose to be sure they know their stuff.

So practically speaking it fanstatic . Long term it gets complicated and also if you have heirs to inherit it there are many restrictions . look up Kareen hall and udirect . She will be a great resource to you.

@Dmitriy Fomichenko this definitely helps. I’m fairly new to this avenue of owning and managing properties. I own one rental at the moment , and looking to purchase a second in the near future. I’m more familiar with REIT’s , Tax liens when it comes to real estate investing . Thanks again for the info, I greatly appreciate it.

@Jason James

Pros:

  • Invest in what you know or what to learn
  • Build your network
  • Tax-advantaged (Tax deferred for Traditional IRA, Tax-Free earnings for Roth IRA)
  • Influence the outcome of your investment (With the stock market, all you get to do is watch. There's nothing you can do to improve how the stock market behaves).

Cons:

  • Requires effort (stock market, you just buy some mutual funds on the web and then there's nothing else to do)
  • Follow the IRS rules regarding prohibited transactions (when investing in the stock market, you have no opportunity to violate those rules). 

Overall, if real estate is your thing - either because you've got experience or want to get experience - leveraging your IRA for real estate investment of any type (tax liens, notes, private lending, etc) - can be very rewarding.

@Jason James

Self-directed IRAs can be a great way to combine the benefit of real estate investing with the tax advantages of your retirement funds. Just be sure the property will be for investment only as you there are restrictions on you (and other disqualified persons) using it.

If you have self-employment activity, the Solo 401k plan will likely be even better for you than a self-directed IRA.