Owning Real Estate in Your Self-Directed IRA

At Republic Investment Group, we’ve witnessed firsthand the many benefits of investing in real estate through a self-directed IRA. Investments in real estate are an excellent way to diversify your portfolio, and they act as a hedge against inflation. You can even be creative in the way you grow your investment: you can fix and flip houses, hold on to rental properties for a regular flow of passive income, and more.

Why Buy Investment Properties in a Self-Directed Retirement Plan?

A “tax-deferred” or “tax-never” retirement plan can defer or eliminate income tax obligations on your cash flow, as well as on your capital gains from the sale of your property. This allows for a compounding effect that can dramatically speed up your wealth-building efforts.

In addition, it is an asset protection strategy to shelter your investment properties because a retirement plan is protected from judgment creditors (retirement plans are protected even in a Chapter 7 bankruptcy filing).

What Can I Invest In?

  • Apartment buildings, co-ops, and condominiums
  • Building bonds
  • Commercial paper
  • Commercial property
  • Foreclosures
  • Improved or unimproved land (leveraged or unleveraged)
  • Joint ventures
  • Leases
  • Limited liability companies (LLCs)
  • Limited partnerships
  • Offshore property
  • Single-family and multi-unit homes
  • Tangible asset deeds
  • Tax lien certificates
  • Trust deeds and mortgage notes

These are just a few of your options with a self-directed IRA.

If you have a traditional IRA, your choice of investment is limited to mutual funds, stocks, and bonds. However, if you have a self-directed IRA, the real estate-related investments allowed are seemingly endless.

Rules and Regulations

When you choose to invest your self-directed IRA in real estate, you should adhere to the rules set forth by the Internal Revenue Service (IRS). Not doing so can cost you a large amount of money in fines and penalties.

Government regulations prevent IRA account owners from participating in transactions with disqualified individuals. A disqualified person can be:

  • Your spouse
  • Your descendants and ascendants, as well as their children, parents, and spouses
  • Your employer
  • Plan service providers and fiduciaries
  • Any business that you own at least 50% of Transactions with disqualified individuals or entities are expressly forbidden by the IRS. If you take part in a prohibited transaction, your IRA account will stop being one on the first day of that year

Frequently Asked Questions

During the waiting period after you make an offer on a property and before it’s accepted, you must perform due diligence. This means you have to thoroughly inspect the property, perform a title search, read through the HOA rules, and more.

Since the IRA is the owner of the real estate, it pays for all purchase and maintenance expenses. In addition, all income goes back to the property. If you need repairs done, you must use IRA funds to pay for them.