What is a Real Estate IRA?

So, What Is a Real Estate IRA Anyway?

“What is a real estate IRA?” is a common question. Self-directed retirement plans used to acquire real estate investments are commonly called real estate IRAs. Real estate investing in IRAs is popular for many individuals, especially those who are knowledgeable in the industry.

Well-known assets include rentals, rehab-and-flip projects, single and multifamily homes, commercial property, as well as improved and unimproved land. Private mortgages, tax liens and deeds, and offshore property investments are also permissible in self-directed plans. Regardless of which option you choose, each has its own wealth-building potential and adds diversity in retirement portfolios.

How does a real estate IRA work?

  • The property is owned by the IRA and titled in the name of the IRA.
  • You (or any other disqualified person) are unable to receive current benefits from the investment (i.e., vacationing in a rental property owned by your IRA).
  • Your IRA is unable to purchase property from or sell property to you or another disqualified person.
  • All expenses and income flow directly out of and into the IRA.

Historically, property has been considered a preferred asset that weathers the volatility of the stock market well. And, not only are there various assets to choose from, there are a few different ways you can fund the purchase using your real estate IRA.

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Ways to fund investment property

  • By partnering your IRA funds with another IRA, individual, or inside an entity like an LLC to invest.
  • Through a cash purchase with 100 percent of proceeds coming from the IRA.
  • Finance it using a non-recourse loan if the IRA does not have enough funds to purchase the property.