Key Points 

• A Self-Directed IRA allows real estate investments to grow either tax-deferred or tax-free, potentially enhancing long-term returns.
• With a Self-Directed IRA, investors have full autonomy over real estate investment decisions, including property selection and management.
• Adding real estate to your retirement portfolio can reduce overall risk by diversifying beyond traditional assets like stocks and bonds.

Real estate is one of the most popular investments for those using a Self-Directed IRA (SDIRA). Investors with expertise in real estate often prefer leveraging their knowledge to grow their retirement savings with tax advantages, rather than relying solely on stock market performance. A Self-Directed IRA offers a vast array of opportunities in alternative assets, enabling you to invest in properties that align with your financial goals and investment strategy.

A Self-Directed IRA with Checkbook Control, also called a Checkbook IRA, allows even more control to manage everyday investment transactions without involving your Self-Directed custodian for additional paperwork. In this setup, your SDIRA owns an IRA LLC or IRA Trust that you establish, and you can complete transactions through a dedicated checking account. The tax-deferred or tax-free status of your SDIRA or Checkbook IRA adds to any potential gains you may see in your real estate investments.

Self-Directed IRAs With Real Estate: The Process

Broad Financial provides a straightforward process to set up a Checkbook IRA that can be used for real estate investments.

First, you’ll open a new Self-Directed IRA with our sister company and SDIRA custodian, Madison Trust. Simultaneously you’ll fill out Broad Financial’s online application. To fund your Self-Directed IRA, you’ll transfer or rollover all - or a portion of - your funds from an existing retirement account, such as an IRA or 401(k), or make an initial contribution.

Next, Broad Financial will create a specialized, IRS-compliant LLC or trust (whichever one you choose) for your IRA and take care of the paperwork.

Once your specialized IRA entity is created, you will open a checking account in the name of your LLC or trust at the bank of your choice and instruct Madison Trust to send your IRA funds directly to the entity checking account. Then, you can start investing with the power of checkbook control.

Benefits of Self-Directed IRAs for Real Estate

Investing in real estate with a Self-Directed IRA offers several notable benefits, including:

Tax-Advantaged Growth

Whether you choose a Self-Directed Traditional IRA or Self-Directed Roth IRA, the tax advantages are substantial. In a Self-Directed Traditional IRA, your investments can grow tax-deferred; you only pay taxes upon withdrawal. With a Self-Directed Roth IRA, you pay taxes on contributions, but your investments can grow tax-free, and qualified distributions are also tax-free. These tax benefits, especially when compounded over time, can significantly enhance any growth of your retirement savings.

Direct Asset Control

Investors with a Self-Directed IRA have full control over their real estate investments. You decide which properties to purchase, how to manage them, and when to sell. This autonomy allows you to leverage your real estate expertise. With checkbook control, you can act on investment decisions quickly, such as purchasing foreclosed properties or investing in short-term rental opportunities.

Potential for ROI

Real estate can provide substantial returns on investment, especially when managed effectively. By selecting properties with strong rental potential or significant appreciation prospects, you can potentially achieve higher returns compared to traditional investments. The ability to reinvest rental income within the IRA, without immediate tax consequences, further amplifies the potential for growth.

Portfolio Diversification

Adding real estate to your retirement portfolio diversifies your investments beyond stocks and bonds, reducing overall risk. Real estate often fluctuates differently from traditional assets, potentially providing a hedge against market volatility. By diversifying into various types of properties—such as residential, commercial, and industrial real estate—you can further mitigate risks and enhance the stability of your retirement savings.

Enhanced Protection

Investing in real estate through a Self-Directed IRA offers a level of creditor protection. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, assets within an IRA are protected from creditors up to $1 million. This protection does not extend to real estate investments held outside an IRA.

Considerations When Investing in Real Estate with a Self-Directed IRA

While the benefits are compelling, there are several important considerations when investing in real estate with a Self-Directed IRA:

Time Commitment

Real estate investments require active management. From finding the right property to handling tenant issues and maintaining the property, managing real estate can be time-consuming. If you prefer a hands-off approach, you may want to consider hiring a property management company or investing in a real estate syndication.

Liquidity

Real estate generally has a different liquidity profile compared to other investments like stocks or bonds. Selling a property can sometimes take longer, particularly in certain market conditions. This consideration becomes more relevant when it's time to meet Required Minimum Distributions (RMDs). Options such as in-kind distributions or partial sales can help address these scenarios.

Compliance and Regulations

Maintaining the tax-advantaged status of your Self-Directed IRA requires adherence to IRS regulations, including rules about prohibited transactions. Ensuring that all property-related income and expenses are processed through the IRA’s checking account is key to compliance. Proper management helps preserve the benefits and avoid any potential penalties.

Tax Trade Off

When holding real estate in a Self-Directed IRA, you forfeit certain tax advantages, such as depreciation deductions and lower capital gains tax rates. While the tax-deferred or tax-free growth of an IRA often compensates for this, it’s important to consider how these factors impact your overall investment strategy.

You Focus on Your Investing: We'll Handle the Rest

With Broad Financial, it’s easy to begin investing in real estate using a Self-Directed IRA with Checkbook Control. Our team of specialists handles all the setup and administrative processes, including the creation of your LLC or trust, so you can focus on what matters most — finding the right properties and growing your retirement savings. Ready to get started? Contact us today!