Dated: August 17 2019

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There is a great misconception out there today. It is that you MUST invest your Individual Retirement Account [IRA] in Bank CDs, in the Stock Market, in Bonds, Mutual Funds, or Annuities. Not many folks know that the IRS has ALWAYS permitted Real Estate to be held in an IRA.

The Employee Retirement Income Security Act of 1974 [ERISA] permits a self-directed IRA. The Self-Directed IRA is the lesser-known of the IRA options. It requires the account owners to make active investments on behalf of the IRA plan.

Take Control

Real Estate can, and likely will, be a good, long-term investment that should generate higher returns than the stock market. The process requires a bit more preparation and due diligence than simply walking into the bank and opening a CD. The potential reward, far and away, justifies any minor additional work or effort to establish and maintain a Self-Directed IRA in Real Estate.

You will need to form or find a team of professionals with experience in this area. First, you will need a Trustee or Custodian. This is the person who will hold the IRA assets and be responsible for administering the account, including filing all required documents with the IRS. You will also need to have an attorney, an accountant, and last but certainly not least, a competent Real Estate professional.

As an investor considering using a Self-Directed IRA in Real Estate, you need to perform a personal risk tolerance assessment. Determine what level of risk you can stand, personally and financially. Then consider the positives and negatives of the requirements in establishing and maintaining a Self-Directed IRA in Real Estate. Seek advice from your team attorney and get input from your team accountant. All of this will take a little time and planning but it is not difficult or intimidating at all. Have realistic expectations in that you will not walk into your attorney’s office and walk out with a Self-Directed IRA in Real Estate.

The down payment to purchase Real Estate in your Self-Directed IRA MUST come from IRA funds. You may need to do a rollover. The Trustee or Custodian will handle this simple process for you. The next step would be to get together with your Real Estate professional and find a suitable property. When you find the property and get an accepted offer you, the account holder, will need to review and sign the contract. The Trustee or Custodian will then need to review and approve as it is they who will release the funds. Sure, this is not the typical process in purchasing real estate, there are a couple of extra steps but nothing outrageous or even difficult.

If you don’t have enough money in your Self-Directed IRA to purchase the property you have some very interesting options. You can finance the purchase. That’s correct, your Self-Directed IRA in Real Estate can secure a NON-RECOURSE loan to leverage the purchase. A non-recourse loan is one that is secured ONLY by the property and, in the event of default, the lender can only use the property and not go after the Self-Directed IRA. It is important to note that if you finance the purchase, tax will be due on profits attributed to the amount financed. So if you financed 50% and you make $100,000 on the Self-Directed IRA in Real Estate transaction, the IRA will be required to pay taxes on 50% of the profit, the rest will grow tax-deferred, or in the case of a Self-Directed ROTH IRA in Real Estate, tax-free!

Another option is to partner up. Your Self-Directed IRA in Real Estate can invest in a property with others who are considered NON-QUALIFIED PERSONS, meaning they cannot be your parent, spouse, child, daughter-in-law or son-in-law. You cannot partner with companies you have 50% or greater interest in. All income or gain from the property with investors would be allocated to the investors based on their percentages of ownership. The partners’ investment need not be with qualified money [IRA or Retirement money].

A few important things to remember:

  • All expenses, maintenance, taxes and insurance are paid from the IRA. This would include any dues or membership fees related to the property
  • The Custodian or Trustee is required to oversee every cent.
  • The income from the property is tax-deferred. This applies to rental income AND capital gains. In the event of a ROTH, the income will be tax-free. If you will be in a lower tax bracket at or after retirement this is very beneficial.
  • IRA rules don’t change just because you have a Self-Directed IRA in Real Estate. You cannot use funds for other purposes and you cannot live in or use the property you acquire.
  • There is no time limit on holding property.

With a Self-Directed IRA in Real Estate you can invest in:

  • Raw Land
  • Residential Homes
  • Commercial Property
  • Apartments
  • Duplexes
  • Condos/Townhomes
  • Mobile Homes
  • Real Estate Notes
  • Real Estate Purchase Options
  • Tax Liens Certificates
  • Tax Deeds

 Using Retirement Funds for Real Estate Investing

In summary, a technique that has been reserved or used by the wealthy and astute investors is available to you. No longer are you relegated to invest your hard-earned retirement money in a bank CD to earn a rate that doesn’t come close to keeping up with inflation. The experts all agree that the retirement savings rates across this great country of ours are abysmal, at best, and are woefully inadequate to fund a retirement anywhere near the length of time that life expectancy tables are predicting. The best person to take care of the financial needs of the older person you hope to one day become is the younger person you are today. Consider this, imagine turbo-charging your Self-Directed IRA in Real Estate by implementing a Real Estate Flipping Program. Add a trusted, professional general contractor to your team and you now have the ability to see fantastic rates of returns on your Self-Directed IRA in Real Estate. Newsday reported, “Nassau County is one of the nation’s most profitable counties for home-flippers!”


If you are interested in a Self-Directed IRA in Real Estate, The McKenna Team of eXp Realty are experts in the area and have put together a qualified team ready for you to get started. We will introduce you to an attorney, accountant, trustee/custodian and a general contractor who are all experienced in this area. Call 631-278-6987or email today to arrange for a private consultation or to find out when our next seminar will be held on the topic of Self-Directed IRAs in Real Estate.

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Cynthia McKenna

I am a Licensed Associate Broker who has lived and loves all things real estate for the last 20 years! I have a proven track record of selling homes with a 1.53% list to sale ratio and days on market....

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