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How to Use IRA for Real Estate Investing

By: , dated January 25th, 2013

IRAs have become the tax shelter of choice when it comes to retirement funds for most Americans. Beyond that, most people already know that you can invest your IRA money in stocks and bonds and even in mutual funds if you so desire, however; did you know that you can invest in other things as well? You can actually invest IRA funds into real estate if you like. While 97% of the IRA money in the country is in stocks, bonds, and mutual funds, you can put yourself in that other 3% who want to be more diversified and invest in property with their IRA fund.

With your IRA fund, it is perfectly legal and in fact it may be a really good idea to invest in real estate. Whether it is a house, a commercial building, apartments, or something like a duplex, real estate can keep your retirement fund diversified. That is, you will be diversified not just within stocks and bonds, but also within different types of investment. With true diversification using property, it is possible to earn value even in bear market conditions, which can be a big plus when you consider that an IRA is largely a long term investment.

To make a real estate investment with your IRA, you need to first establish an account with a custodian that specializes in putting IRAs into real estate. The main reason for this is that the IRS actually does not allow you, as the owner of an IRA, to handle any financial transaction that directly relates to the ownership of property. The custodial company, then, must take care of everything for you.

The main thing to remember when you consider purchasing property with your IRA fund is that it must be an investment property. It can be neither a primary nor secondary home to you. So when you go to look for the property to buy, you should make sure it is either already rented or is going to be easy to rent once you buy it. This is a crucial factor.

However, the one thing you should be aware of is that finding a lender for your IRA investment property can be very difficult. Most banks will not lend you money for purchasing through an IRA because legally the IRS will not allow a guarantee to be made by you, the borrower. That is yet another reason which makes a custodian a necessity. In other words, before you do anything with your IRA fund in terms of a real estate purchase, make sure you have secured a custodian to handle your funds.

As you can see, buying real estate with your IRA fund is a bit complicated. On the other hand, it can be a great way to diversify your IRA, and since you don’t have to buy the property with cash, you can further diversify beyond that. The main thing, though, is to make sure you secure a custodian for your funds, find the right property, and are aware of the IRS laws surrounding such a purchase.

This article was brought to you by the InvestorGuide Staff Writers and Editors.

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2 Responses to “How to Use IRA for Real Estate Investing”

  1. Marty Karpiel says:

    Can you use money in your self-directed IRA to buy invenstment property outside of the Us? Specifically a condominium which would be rented.

  2. real estate buying says:

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