Investing In Real Estate With Your IRA
Recently all over Wall Street Journal, New York Times, and countless other publications there have been stories about big Wall Street companies jumping in and buying real estate rather than stocks – because they know they can get a better return and less volitility. Did you know that there are opportunities for investing in real estate with your IRA too?
So, why are most Americans still trusting their own retirements – IRAs and 401ks – to the stock market?
The answer is, they don’t know there are other options. I didn’t know that either until I read this article about investing in real estate with your IRA several years ago.
Before we dive into the good stuff, remember, we are not financial advisors and by no means should this guide be meant to act as financial, tax, or legal advice. It’s for informational purposes only. Consult your own professional advisors before you make any major financial choices.
The Self-Directed IRA for Real Estate
There’s something called a Self-Directed IRA (SDIRA). They’ve been around for a while, and in the past several years, many people have realized that their IRAs are a roller coaster ride. Those people (maybe this is you) have started to look for other ways to earn better returns with that same IRA.
Enter the “self-directed IRA”.
A self-directed IRA is simple. It’s a retirement account that has the same tax benefits as a normal IRA, but, you have more flexibility in deciding what you want your IRA to be invested in.
You can invest in…
- Real estate (commercial, income generating rental property, rehabs, etc.)
- Promissory Notes secured by mortgages (i.e. – private lending)
- Tax lien certificates
- Limited partnerships
- Sub-C corporations
- Real estate options
- Some types of precious metals
- Even normal investments like stocks that your traditional IRA can invest in
Basically, this gives you options so you can buy investment real estate with your IRA, or be a private lender in real estate.
Are There Restrictions When Investing in Real Estate With Your IRA?
Yes, there definitely are. There are restrictions on what you do with the real estate if you buy and hold, what types of precious metals you can buy, and often times the “custodian” of the SDIRA has restrictions on what they think you can and should invest in.
A custodian? What’s that? The person that sweeps the floors of the office?
Self-Directed IRA Custodians
The US Government created the SD-IRA loophole to help investors take more control over their investments while at the same time still getting the tax benefits. But, at the same time, they didn’t want people setting up these SD-IRAs and just doing whatever they want.
The custodian is there to prevent you from doing anything stupid.
They are usually the Self-Directed IRA company who you have your IRA with. They act as the “go-between” when you’re going to make an investment. Many custodians have guidelines on what you can invest in, how long it will take for you to actually make your money work for you once they approve the investment and more. Some custodians are more passive and let you actually have a checkbook where you can write checks from your SD-IRA to make investments, but it really varies depending on who it is with.
You should do your homework and find the custodian that’s right for you. Here are a few that we know and respect:
- Guidant Financial (expensive, but gives you true checkbook control, which is huge) – https://www.guidantfinancial.com
- Equity Trust – http://www.trustetc.com/
- Entrust – http://www.theentrustgroup.com/
Do some research to find the right fit for you.
What you typically have to decide is if you want more flexibility, or fewer fees.
What To Ask A Self-Directed IRA Company Before You Work With Them
Before you sign on with an SD-IRA company… ask them a few key questions.
- What are your fees? – Fees can vary wildly. Some charge an annual fee based on the value of the account, some charge a flat fee, some charge large setup fees, and others have miscellaneous ones. Find out what works for you. The idea is that by being able to invest in real estate with your IRA, you’ll more than make up for the fees you’re paying with your higher returns.
- What’s the process for approving an investment? – Some companies can take up to 30 days to fund an investment after you send it in for approval. Some SD-IRAs give you what’s called “true checkbook control”, where you actually get a checkbook where you can write checks from your IRA account, which gives you immediate access to the funds (i.e. – to close a deal quickly). Checkbook control usually is a tad more expensive to set up than an IRA account that requires all investments to go through the sometimes lengthy custodian approval process, but again, find out what’s best for you.
- Are there any restrictions on what I can invest in? I want to invest in real estate and make private loans. – Some SD-IRAs with larger more traditional companies like Schwab and SmithBarney put restrictions on what your account can invest in. Some don’t allow real estate, while others do. Just ask.
- Is my retirement account eligible to “rollover” into an SD-IRA? – Not all retirement accounts can be rolled over into a self-directed IRA. Most IRAs can be, and even some 401(k)s can be. Just ask your financial advisor and ask the representative at the SD-IRA company you’re working with.
- How long will it take for my account to be up and running and have funds available for investment? – Some people wait way too long to get this process rolling. If you know you want to use your IRA to invest in real estate, start the process of rolling it into an SD-IRA account asap. Some companies may take weeks or even over a month to have your account setup complete and ready to invest. Don’t wait until you’ve found a great real estate deal to get started, get started today so your funds are ready to invest when you need them.
Getting Off The Sidelines And Getting Your Money Working For You
If you feel a self-directed IRA may be a great way for you to invest a portion of your retirement in things you know (rather than the unpredictable stock market), then dive in. Take some time to educate yourself on the pros and cons of a SD-IRA (those websites I put above are a great place to start. They have all kinds of resources to learn more about self-directed IRAs and how you can use them to invest in real estate). If you are a beginner, I probably would not use this until you have done a few deals and are confident that you will make money. Unexpected things happen all the time, and you don’t want to lose a big chunk of your retirement account. Buying through us will help you avoid that, but even we don’t get it right every time.
If you have any questions on how you can work with us as an investor… just connect with us through our contact form or call us anytime at: 225-230-2521. We offer discount investment properties in Baton Rouge and surrounding areas to investors like you who often buy them and keep them as rentals. Also, for those qualified investors who want to explore private lending, contact us and we’ll talk about how we work with private lenders as well.
Happy investing! We’re here as a resource for you so don’t hesitate to connect with us anytime.