Can You Buy Investment Real Estate With Your IRA? What your financial advisers don't want you to know.

This past weekend I attended a real estate investment course.  I was so excited to learn so many techniques in raising cash to use towards investing in real estate.  I plan on sharing what I've learned throughout the entire course over the next few weeks. But there was one point in the course when the coach asked the class "Who here knows that you can purchase real estate with money from your IRA through a Self-Directed IRA?"  I've known this for years! To my astonishment, no one raised their hands, but me! The room was filled with Real Estate Brokers and Investors, commercial & residential and no one raised their hand!  This is what compelled me to write this blog piece.  I need to get the word out!

Your financial advisers don't want you to know this. Do you know why? Because they don't sell real estate. They sell stocks & insurance. Without your IRA, they cannot make fees from you.  By transferring your IRA to a Self Directed IRA you can purchase real estate, among other things.  My expertise is selling real estate, so I'll just write about that.  

What types of IRAs can you transfer to a Self Directed IRA? 

• Traditional IRA
• Roth IRA
• SEP IRA
• SIMPLE IRA
• 401(k) from previous employer
• HSA
• Coverdell

Why would you want to invest in real estate with your IRA?  

• It is a tangible asset - you can see it and touch it.
• It can be a leveraged investment if you chose.
• It has the potential for cash flow, as well as market appreciation!
• You have control!

Let me expand on benefiting from cash flow AND Market Appreciation.  Today I did an analysis on a home on the market for $37,500. In 2002, prior to the peak of the real estate bubble, this home sold for $137,500. I estimate it needs about $15,000 worth of repairs to be liveable. I don't love the house. I don't love the neighborhood. I don't have to live there. I'm not encouraging anyone to be a slumlord! But it's a college town and the rate of renters far outweighs the number of owner occupied properties.  For fixed up single family homes, landlords in the area are getting $1000/month for rent.  I recommend hiring a property manager to avoid those 3 a.m. nuisance calls. This particular property has no yard or driveway to maintain. Property Taxes are under $2,0000/year. Estimate Insurance at $1,000/year. For a single family home, expect to pay 10% of the monthly rent to a property management company.  That leaves you with $900/month income cash flow or $7800.00 annually. You're investment from your existing IRA is $52,500.  Is your IRA earning you nearly 15% Returns? THAT IS JUST ON THE CURRENT CASH FLOW! The home is certainly going to appreciate over the years and rents go up! Now, who is behind the 8 Ball on your retirement plans? Now, what are you going to do about it? 

There are strict rules governing the purchase of investment property through Self Directed IRAs. For example, you cannot pay yourself for work you do to your investment property. You have to hire someone else and provide the IRA with a valid receipt. All expenses are paid from the IRA, as all income goes right back into the IRA.  You cannot use the investment real estate for personal use. For example, if you purchase a home in a vacation community, you cannot use it for yourself. There are also rules against which family members may and may not benefit by using or renting your investment property. The financial rewards you will reap far outweigh the rules.

What if you do not have enough money in your own IRA to purchase real estate? You can actually partner with other IRA holders that you know or you can even use leverage (a home loan) to purchase property! The loan must be non-recourse and there are other rules for that. 

What if you just want to Fix and Flip, not Fix and Hold?
You can do that! But all earnings and expenses must go through the IRA

If you think you may want to consider purchasing an investment property with your IRA funds, click here and I will put you in touch with a Trustee company. You may also contact me for a referral to an exceptional agent that is knowledgeable in these methods, in your area. Remember, if you live in an area where real estate is priced high, you can purchase real estate in other states.

This article is for informational purposes only. This is not investment advice. Please speak with an experienced real estate professional, Trustee company and tax accountant.