Real Estate IRA

The powerful combination of value appreciation and income has historically been an attraction for investors who understand the risk-return tradeoff of real estate investing. You can own real estate of any kind within your IRA. Been told otherwise? We are not surprised. Since the inception of the IRA in 1974, Americans have been misinformed and kept in the dark about the true choices available within IRAs. But don’t take our word for it. The Internal Revenue Code’s rules and regulations provide the validation you and your trusted advisors often seek.

Section 408 of the Internal Revenue Code allows for the purchase of property with funds held in many common forms of an IRA, including a Traditional IRA, a ROTH IRA, a SIMPLE IRA and a Simplified Employee Pension (SEP) IRA.

Types of Property Your Real Estate IRA Can Own Are:

  • Residential or commercial real estate
  • Raw land
  • Foreclosures
  • Mortgages
  • Mobile homes
  • Trust Deeds
  • Tax liens
  • Foreign real estate
  • Duplexes
  • Multi-family units
  • Condos
  • Farm land

 

Parties Involved

  • Real Estate Agent – Has a fiduciary responsibility to the buyer or seller being represented in a real estate transaction
  • Non-Recourse Lender – Provides financing for Self-Directed IRA real estate purchases that use leverage
  • Title Company – Can facilitate and record real estate transactions, provide title reports, and issue Title Insurance as desired
  • Escrow Company – A third party that facilitates real estate transactions
  • Attorney – Because not all states utilize Title Companies, a law firm facilitates those transactions
  • Property Manager – A third party responsible for finding a tenant, handling income and expenses, tenant complaints and communication, property maintenance, and necessary evictions

 

Ownership Considerations

  • To avoid self-dealing within your real estate investment, you or any other Related Parties or entities cannot reside, conduct improvements/repairs (including using “sweat equity”), obtain a personal benefit, or do business from the property you have purchased or sold
  • Property specific expenses must be paid by the Real Estate IRA in direct proportion to the ownership percentages initially established, so it is important to ensure careful attention is given to potential unforeseen or additional property maintenance expenses (i.e. property taxes, homeowner’s association fees, maintenance, labor expenses)
  • Borrowing money or leveraging your Real Estate IRA to conduct business is permissible but can present the potential for Unrelated Debt Financed Income Tax (UDFI); consulting with a qualified tax advisor about these potential IRA tax implications is highly encouraged
  • Fair Market Valuation of property held within your Real Estate IRA, with substantiation, must be provided to Vantage on an annual basis
  • Property must be titled or vested in the name of your Real Estate IRA, not your individual name and in direct proportion to the retirement account’s  percentage of ownership