How to Use Your Self-Directed IRA to Invest in Real Estate

           An IRA or (individual retirement account) is a form of retirement plan provided by the United States and many of its companies. However, many people are unfamiliar with the term self-directed IRA. For those unfamiliar with self-directed IRA’s a simple google search provides a clear definition by Wikipedia stating “A self-directed individual retirement account is an individual retirement account (IRA), provided by some financial institutions in the United States, which allows alternative investments for retirement savings.”. This is essentially the same thing as an IRA with a few extra perks. A self-directed IRA allows alternative investments for retirement savings. This can include a wide range of things, however according to the website Accuplan, “Real estate is by far the most popular asset type for self-directed IRA owners.” This is most likely because investors don’t want their money to be solely tied to the stock market which is constantly fluctuating. Investors seek out opportunity in real estate because it allows investments in real physical properties.

opportunity in real estate

                The first step is setting up a Self-Directed IRA is through the company that your IRA is set up with. These companies should have individual investors capable of setting up a Self-Directed IRA. However, because Self-Directed IRAs are so complex and confusing it is helpful to have a custodian, a person who can help you navigate the craziness and confusion that is a Self-Directed IRA. Once this is in place real estate can benefit many who choose to use their Self-Directed IRA’s to invest. Another helpful piece of information according to Scott Spann “Some IRA custodians have more complicated fee structures than others. Therefore, it is important to do your homework and examine all of the potential fees and expenses that will impact the overall return on your investment. In many cases, it is also advisable to establish a limited liability company (LLC) or other entity to hold the investment assets.” According to Spann “you must generate sufficient cash flow that will cover all maintenance and repair costs without the need for you to add cash each year.”

Self-Directed IRA to purchase real estate

                Many are probably wondering the benefits of using a Self-Directed IRA to purchase real estate. The biggest benefit seems to be found in tax benefits. Once again Scott Spann is quoted saying “As is the case with any investment in your IRA, you benefit from tax-deferred income until the day you take withdrawals. Or, if your investment holdings are in a Roth IRA, your investment gains accumulate tax-free, and you can withdraw it tax-free.” Another benefit is usually an investors overall knowledge when it comes to the real estate. Many investors choose more local investments because they’re familiar with the area. This can generate income but also can keep someone’s mind at ease because its something they can keep their eyes on.

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