Purchasing Real Estate With an IRA: How to Get Started

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Having an individual retirement account is one of the smartest investment decisions you can make for your financial future. Not only does an IRA offer you a wide choice of investment options, from stocks and bonds to mutual funds, annuities, and ETFs, but it also helps you enjoy tax-free growth. And tax-free income withdrawals after you reach 59 ½ years.

However, when it comes to investing in real estate with your IRA, things can get a little tricky. Still, as an investor, you want to keep your portfolio as diversified as possible to maximize your returns and minimize risks.

So, how exactly can you go about purchasing real estate with an IRA? Here are quick steps you can follow:

Set Up a Self-Directed IRA

Now, first things first, a traditional IRA comes with restrictions on what you can invest in. No alternative assets like real estate, commodities, or precious metals. What you need to invest in real estate is a self-directed IRA. 

This IRA works pretty much like a traditional IRA except for the fact that it is owner managed and can invest in wider asset classes. So, how do you set up a self-directed IRA? 

All you need to do is find a self-directed IRA custodian, usually, a company that holds/ maintains your account for you. Then, simply transfer funds into your account to activate it. Once you have your very own IRA, the next steps are pretty easy.

Choose One or More Properties You Want to Invest in

Start looking into properties you want to invest in. It could be an office/ rental apartment, home for resale, or even bare land. There is no limitation to the residential or commercial properties you can invest in through your IRA. Once you have found what you want to invest in and are confident that you have enough funds for it, then you are ready to close the deal.

Get Your Custodian to Complete the Transaction

Lastly, talk to your custodian about your intended purchase, and they will take care of the transaction details. With a custodian, you don’t have to worry about keeping within the law or safeguarding your investment dollars.

That said, whatever property you purchase with your self-directed IRA belongs to the IRA. So, your IRA will receive all the income from it and pay any expenses related to it. And your income will flow tax-free as long as the property remains within the IRA. That is, unless the property is debt-financed, in which case you must pay tax on the profit for the debt-financed portion.

Purchasing Real Estate with an IRA is Simple & Great for Your Portfolio

Investing in real estate is a great way to balance out your portfolio. More so today, when the stock market is more volatile than ever. However, adding real estate to your IRA is not as easy as picking and choosing what property to buy. You need a self-directed IRA. 

Still, the process is straightforward, as there are custodians to help you navigate the complex bits. So, follow the steps and build a strong portfolio for a secure financial future.