Over the last few years we have had quite a number of clients buy investment real estate with their self directed IRA.  I betcha most of you didn't know you could do that. Indeed you can.  It's not just real estate or stocks you can buy with an IRA but I'll stick to real estate.

Over the long term real estate does very well.  See the chart with annual appreciation rates in Greater Phoenix by city since 2001.  That annual rate would decrease over the long term to the historic average of about 5% which is not bad at all especially if you have some leverage: plus you to collect rent.

Now there are a lot of choices for buyers / investors for properties that make sense financially.  You can even buy like new homes in the Phoenix Valley for under $59.00 per square foot or the $100,000 range.  While it was difficult to make a real estate investment work during the boom, unless you were doing things like fix and flips, it possible now to buy homes and apartment with a very good return and strong short and long term return schedules.

Over time, real estate investments have afforded many people with the powerful combination of appreciation and income. The purchase of real estate through a self-directed retirement plan is a popular investor choice for this and other reasons.

A self-directed IRA or real estate IRA  gives you the freedom to invest in non-traditional assets:

Types of Property Your Self Directed IRA Can Own:

Financing:

Although you can buy a property with cash, that is with no leverage, it is possible to obtain financing for the real estate purchase.  In this case only the property is used as collateral: it must be a non recourse loan, one not secured by your personally.

The IRA is the owner of the property and debt.  The debt must be repaid from assets within your IRA, whether it’s income from the property, permissible contributions, or other assets in the IRA. All real property is either purchased or sold for your benefit using your Qualified Plan and/or IRA funds.

How do you buy or sell a property with your IRA.

The purchase of real estate  with your IRA requires a different strategy and additional steps.  Remember it's the IRA buying not you even though you make all the choices. 

As mentioned above its easiest to have enough funds in your IRA to buy the property but you can leverage it.  You also need sufficient reserves and funds for any repair or debt repayment.  The loan needs to be a non-recourse loan made to the IRA.

Since the buyer is the IRA account the escrow needs to be opened by the account.  The funds in the IRA are used as a deposit, down payment or purchase money.

There are additional requirements which you need to abide by.  One of them is that you cannot manage the property: you manage the IRA but not the property, so make sure you calculate that into your analysis: all property rental or lease income, taxes, property management and repairs. Invoices for expenses are paid on client approval by the IRA.

You know the "long term" potential or owning real estate: we'll you can do many things with real estate in an IRA: fix and flips, development, buy and hold, creative financing are just a few of the things you can do with all the benefits or a retirement plan.  The reason you would want to do it is because there are quite a lot of benefits with real estate over other investment vehicles especially if you buy right which is not difficult to do.  As your real estate portfolio grows you can consolidate or expand your holdings. 

While we can help you and your IRA purchase or sell real estate and set up a strategy of what to do with the real estate you need to talk to your self directed IRA adviser about setting up and account and getting full details related to the account. 

If you have any questions please don't hesitate to call us.  We have been through the process of helping clients buy with an IRA multiple times and the same for selling and reinvesting.