Buy Property with your IRA
Did you know you can buy property with a self-directed IRA?
If you're someone who:
- Wants less volatility than stocks
- Desires long term asset appreciation, either tax deferred or tax free (Roth)
- Wants to see your assets, and work with something local and familiar
- Likes the idea of portfolio diversification
The local rental market is booming! A self-directed IRA could be right for you.
3 step process:
Step 1: Move funds into a self-directed IRA (Traditional or Roth)
Step 2: Buy real estate
Step 3: Manage real estate
There are some "Gotcha's" though.
Here's some tips and Tricks!
|
Takes a little work to set up
Need to be hands on or hire a property manager Real estate market can dip, too Has to be arms-length, can't turn a screw |
IRA holder or family CANNOT use property
Use a REALTOR who understands the local market to ensure you get a good buy Get tax and legal advice before proceeding Need enough $$$ in the account |
Each step in the 1-2-3 process has unique challenges:
- Step 1: Which IRA do you choose?
- - Make sure it’s right for you
- Ensure have money for distributions if Traditional IRA
- Ensure have money for the kind of property you’re considering
- Ensure you’re up for the work involved
- - Option 1 – checkbook control, popular for more frequent purchases. Uses an LLC
- - Option 2 – no checkbook control, i.e. Custodian Control
- - Regardless of option, get a pre-qual equivalent and check fee structure
- - Make sure it’s right for you
- Step 2: Buy
- - Don’t borrow, too complicated. Non-recourse loan, high tax rate
- - Use a Realtor, why not? Free for buyers and get expertise
- - Take title in name of custodian
- Step 3: Manage
- - If have checkbook control, write checks for repairs, expenses, such as insurance, taxes
- - If don’t, submit the expense. This comes with challenges, but costs less
- - Hire a property manager?
- - After know expenses, can set up a distribution from your IRA, if eligible. Keep a reserve of at least 5-10% of the value of the asset in case of emergency
