3 Ways Your Self-Directed IRA Can Own Real Estate
By J.P. Dahdah, Vantage Self-Directed Retirement Plans
You can purchase and hold real estate with your Self-Directed IRA! You can buy any type of real estate with a Self-Directed IRA or 401K. It is completely legal and has been permissible since 1974 and, despite what you may have heard, you are not subject to any taxes or penalties for doing so.
Thought you didn’t have the money to take advantage of the low pricing available in today’s real estate market? You probably do, but just didn’t know it!
Self-Directed IRAs have become increasingly popular as more and more Americans desire increased control over their retirement. In many instances, the power of investing in real estate with a Self-Directed IRA is clear — greater profit potential, no tax on rental income, tax-deferred or tax-free return on investment, added diversification and decreased volatility.
It is no wonder Self-Directed IRAs have gained so much press recently by nationally recognized publications.
How does a Self-Directed IRA work? It is quite simple. The first step is to establish a Self-Directed IRA with a company that specializes in alternative asset custodial services instead of a stock market focused brokerage firm. The entire process of establishing a Self-Directed IRA takes about two weeks by the time you have opened an account and funded it via an IRA transfer or rollover.
Remember, your current custodian may be telling you that their products are your only choice, but the truth is that the federal government allows IRA account holders to invest in virtually an unlimited list of assets, including real estate. Once your money has been successfully transferred into your Self-Directed IRA, you are ready to begin.
A Self-Directed IRA can buy and hold real estate three ways: Cash, partnerships or by applying for a mortgage.
Each strategy outlined below has distinctive features and benefits. The good news is that you are in control of how you structure any real estate transaction within your Self-Directed IRA to best fit your overall investment objectives.
1. Cash
Your Self-Directed IRA pays 100% of the purchase price of the property
Your Self-Directed IRA owes 100% of all expenses
Your Self-Directed IRA collects 100% of all the income – tax free!
Great advantage in the current market to beat other bids from competing investors that need financing to purchase the investment property
2. Partnering
Accomplished through the use of entities like a Limited Liability Company (LLC) and Limited Partnerships (LPs). Ask us about the ultimate strategy for investing in real estate with an IRA; the Checkbook Control IRA LLC!
Your Self-Directed IRA purchases a fractional interest of the entity alongside other investors by pooling monies to buy more properties or bigger deals that your Self-Directed IRA may not be able to afford on its own
• The other investors can use their personal money or their IRA funds to partner with your Self-Directed IRA
Your Self-Directed IRA owes pro-rata interest for all expenses within the entityYour Self-Directed IRA collects pro-rata interest for all investment income – tax free!
3. Mortgage
Buying real estate in your Self-Directed IRA with a mortgage
• The mortgage must be a non-recourse loan (no personal guarantees)
• Your Self-Directed IRA is the borrower, not you personally (Your personal credit score is not used to determine underwriting)
• Typical down payment for an IRA non-recourse loan is 30%-50%
• The property must have sufficient rental income to pay the mortgage
Your Self-Directed IRA will own 100% of the property subject to the mortgage
Your Self-Directed IRA collects 100% of all income
Your Self-Directed IRA pays 100% of expenses including mortgage
Your Self-Directed IRA balance can be leveraged to buy more real estate deals in the current buyer’s market!
I have established a relationship with the nation’s premiere Self-Directed IRA Company,
Vantage Retirement Plans, LLC . If you are interested in opening a Self-Directed IRA or simply need to learn more about their services, we encourage you to contact them directly by emailing Info@VantageIRAs.com.
For all of your real estate investment needs, however, please be sure to contact Betsie Melter at 480.734.3644.
