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Home > Blog > Real Estate IRA Rules: How Investing in Real Estate With Your IRA or 401k Works

Real Estate IRA Rules: How Investing in Real Estate With Your IRA or 401k Works

Investing in Real Estate with a Self-Directed IRA

In the world of alternative investments, real estate is the most popular investment in a Self-Directed IRA. People who have acquired an expertise in real estate feel comfortable making their money in that space rather than the stock market, which usually feels like more of a gamble to them. These people understand real estate, and a Self-Directed IRA offers nearly limitless options for an investor to leverage that experience. As a result, the ability to invest their retirement funds in real estate becomes an extremely appealing option.

A Self-Directed IRA with Checkbook Control allows real estate investors to essentially continue doing exactly what they have been. In a Checkbook IRA, the IRA owns an LLC that you create at initial setup, and the funds contained in the IRA make all the payments necessary for your property. It is essential that only the IRA handles transactions and payments due to IRS regulations, which you can learn more about under the "Self-Directed IRA Prohibited Transactions" subheading in our The Ultimate Self-Directed IRA - With Checkbook Control page.

The tax-sheltered nature of the Self-Directed IRA make it an ideal vehicle for real estate investing. Not paying taxes on all the profits you make until you claim it as a distribution provides a massive edge that simply can’t be achieved otherwise. The combination of the freedom to invest in your area of expertise and the tax advantage that an IRA provides is the best way to see noticeably larger returns than you would ever get with a traditional IRA.

Self-Directed IRAs with Real Estate: The Process

Broad Financial makes it safe and simple for you to purchase Real Estate with your Self-Directed IRA and 401k funds. Here’s how it works:

  1. When you set up your Self-Directed IRA or Solo 401k, you’ll also be opening an accompanying checking account at the bank of your choice. This checking account will serve as the platform for you to purchase and manage investment properties.
  2. When you’re ready to purchase a property, just write a check from your dedicated account. (Yes, it’s that easy.)
  3. All deposits (rent checks, proceeds from sales, etc.) are made directly into the checking account, and all expenses (mortgage payments, real estate taxes, capital improvements, utility bills, repairs, etc.) are paid from the same checking account.
  4. In short, the property is owned by your IRA or Solo 401k, it is managed by you (on behalf of your IRA or Solo 401k), and all transactions go through your IRA or Solo 401(k)’s checking account.

The Advantages of Self-Directed IRAs for Real Estate

  • Financial Agility – Checkbook control allows you to purchase foreclosures, tax liens, and other on-the-spot investments as soon as they are presented.
  • Hassle Free – Your dedicated checking account provides a one-stop destination for all of your transactions. This obviates the need for third party requests that can cause delay and frustration in your real estate purchases.
  • Safety – The checking account for your Self-Directed IRA or Solo 401k will be set up by you, at your bank, so it will always be under your control.

Self-Directed IRA Real Estate Rules and Purchasing Restrictions

Although there are no limitations on the type of real estate your Self-Directed IRA or Solo 401k may purchase, there are several restrictions in terms of ownership and servicing that the potential investor needs to consider.

  • Your Self-Directed IRA/Solo 401k may not purchase a property that you own. Similarly, you cannot buy a property that your IRA/Solo 401k owns.
  • You cannot live in, or vacation in, a property that your IRA/Solo 401k owns.
  • You cannot hire a business owned by a disqualified person to provide a service to your IRA/Solo 401k owned property. In other words, if your IRA owns a rental property, you cannot hire your dad’s roofing company to replace the roof.
  • You cannot receive a salary for managing the property. However, you may perform managerial services without charging your IRA or Solo 401k a fee. (These duties fall under your responsibilities as the non-compensated manager of the LLC or Trustee.)
  • You cannot perform physical work to a property that your IRA or Solo 401k owns, e.g. you cannot replace a damaged roof by yourself. The reason for this restriction is that the work would be considered a non-cash contribution to your IRA or Solo 401k which is prohibited.

All You Need to Worry About is Your Investing Strategy. We'll Handle the Rest

When thinking about making the move into real estate IRA investing, Broad Financial makes it as easy possible. We take complete care of your LLC creation, so you're only focus can be on investing and not administrative processes.

Contact a Self-Directed specialist today to get started.

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