Several Useful Pointers On Buying Real Estate In Your IRA

This country is based in large part upon the ability of an individual to take advantage of real estate opportunities. While real estate investing has been relatively unfavorable during the last couple years, historically speaking it has always represented a very lucrative way for individual investors to build wealth and prepare for retirement. It’s certainly not true, as some people believe, that individual retirement accounts, also known as IRAs, are supposed to be reserved for relatively mundane concepts such as certificates of deposit, for example. It’s exciting to find out that you can invest in real estate, using your IRA funds through a real estate IRA.

When you use a real estate IRA, you can take advantage of some real benefits as you invest in real estate. For example, you can opt to defer taxes or take profits tax-free, thus saving you money that you would otherwise have to pay as income or capital gains tax and this can add up to a lot, even as much as 50% in certain circumstances.

By utilizing a real estate IRA, you gain true control over estate planning and can harness the power of compound interest, which is often seen as the “holy grail” of investment activity.

There are certain restrictions and rules associated with real estate IRAs, as you would expect. Specifically, you are not allowed to work or live in the property that you own as part of your self-directed real estate IRA, nor may you purchase an interest in a property or buy the property itself, if it is already owned by a “disqualified” person, as categorized. Disqualified people are those members of your immediate family, those of lineal descent and yourself, of course.

You can roll over funds from an existing IRA, 401(k), 403(B) or other qualified retirement account into a new real estate IRA. By establishing a limited liability company, you can also self-direct and self-manage your assets and allocate them to real estate investments without the hassle of going through a custodian for approval. If you are considering rental properties, be sure that your rental income in these cases is placed back into the IRA and not elsewhere.

Be very careful to ensure that all your financial transactions and any other dealings linked to your real estate are pushed through your self-directed real estate IRA. For example, if you are planning to renovate the property, all the expenses incurred must be paid for by the real estate IRA and, when you sell the upgraded property, all the funds must consequently go back into the IRA. It’s not legal to “siphon off” profits associated with such deals, as the real estate IRA itself must be the one profiting from the transaction. You must be sure to avoid anything that could be classified as “self-dealing.” Just be careful to ensure that transactions between the seller and buyer are determined naturally.

Look at the establishment of a self-directed real estate IRA now and when opportunities associated with the rebounding real estate market present themselves to you, you will be ready. While a real estate IRA might not be for everyone, if you have experience investing in real estate, why not use your knowledge of the real estate market to dramatically increase the returns in your IRA?