Real Estate Investing
Using Your IRA for Real Estate Investments
by Chris Parry (Write for us!)
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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.
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