Using IRA for investment property

4 Replies

Purchased my first investment property this year and it is getting me a good return as a single family rental. I have an IRA that is doing well but will not be adequate income at retirement my question is should I cash in my IRA to purchase another unit? The rental income would be more than the income that would be generated from the IRA.

@Timothy Hopkins - Great question! First - congrats on the purchase of your first investment property! As far as getting into investing with your IRA - you mentioned cashing it in to purchase another property. You obviously could do that, take the hit, and reinvest into another investment property. You could also take a look at potentially setting up a self directed IRA account and use that to purchase the investment property - thus not having to take the tax hit until you are taking distributions at 59 1/2. This is assuming this is a traditional IRA of course and not a ROTH. You could potentially go even one step further - self direct your IRA and look into non recourse lenders to leverage the lender's money to gain more properties in your IRA. At least a few ways to go - but I would base the decision on at least a few things: (1) your age, (2) the amount in the IRA itself, (3) the properties you are looking at and the investment required, (4) weighing the cost of taxes and penalties (if under retirement age) vs. cost of lending, (5) your overall holdings - are you diversified in other asset classes with other investments? Hopefully this helps and gives you some other options to consider as you continue your real estate journey!

Eric

@Timothy Hopkins

I wouldn’t cash the Ira in. I would open a self directed Ira and buy it in the Ira. I did it 20 years ago and haven’t stopped. I think it was one of the smartest moves I ever made. The gift that keeps on giving.

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Thank you for the input! I am 59 and my IRA is only about 62k. My first property was 89k and needed minimal work. I will look at the options that you mentioned such as the self directed IRA. Not familiar with that option but will begin researching it. Again thank you for the information that you shared!

Originally posted by @Timothy Hopkins :

Thank you for the input! I am 59 and my IRA is only about 62k. My first property was 89k and needed minimal work. I will look at the options that you mentioned such as the self directed IRA. Not familiar with that option but will begin researching it. Again thank you for the information that you shared!

Tim, 

If you are 59 then the smart play is to convert your IRA to a SDIRA. You are at the perfect age to start benefiting from it without penalties and take advantage of a tax deffered entity if used for passive income correctly. I've helped a lot of people do that in the past. If you have questions regarding this feel free to to PM me. I hope that helps and best of luck!