Self-Directed IRA for Real Estate

Nov 4, 2020

IRA for Real Estate

Use your savings to invest in real estate!

One of the biggest questions I get is whether an investor always has to work with loans and mortgages to make each investment. While many people turn to banks or look for other investors, many already have what they need to make their first (or next) investment purchase.

You may have savings put away so you can live comfortably when you stop working. These savings are inactive right now. 

Your money is sitting in some account, waiting for later. But your retirement savings could help you now, especially when it comes to investing in real estate. 

The funds in a self-directed IRA (Individual Retirement Account) are for investment. The money in regular IRAs never leaves until withdrawn by a retiree. The contents of a self-directed IRA can get invested in resources such as precious metals, water rights, and real estate. 

Here are some things to consider.

You Choose Your Investment

As the investor, you decide how to use the money in a self-directed IRA. You direct the funds. While you can’t take the funds out for your personal use without having taxes deducted (and early withdrawal fees!), you can use your money to buy real estate.

Real estate purchased through retirement savings can’t be for you to live in, and it can’t be something you buy for or from a family member. Your purchase has to be for investment purposes such as a fix and flip, rental property, or RV park. 

All of the money in your IRA can go towards purchasing a property for rent or resale. The property’s value will affect the contents of your IRA, and any eventual sale will go back into theIRA. The profits from a rental property, however, will go straight into your pocket.

Self-Directed IRA for Real Estate

Get a Custodian

While you will decide where your retirement funds go, you will need a custodian to help you manage your self-directed IRA. 

A custodian is someone familiar with the ins and outs of specialized retirement funds. A self-directed IRA is quite complicated, with many rules about what can and cannot happen. Having someone well-versed in the legalities of real estate investment and retirement savings is crucial for your success.

Banks will not provide someone for you. Most won’t even help you configure your IRA to be self-directed. You will have to find your custodian at a separate financial organization.


Research Well

Investing your retirement funds into real estate is riskier than leaving them to sit in the bank. Some fluctuations occur within the housing market. If you’re not careful, you could lose a significant amount of your retirement funds.

You should always research your options when investing in real estate, but I would recommend even more work when using a self-directed IRA. Messing with retirement savings can have devastating effects. Treat this investment seriously. 

Your IRA may not feel like your money, but it is. You can’t see it or hold it, but it is very much yours. Don’t treat it flippantly.

Leave Room

Lastly, make sure you leave room in your IRA for expenses. The funds for any renovations or repairs on your real estate investment must come from your IRA. You can put money in your savings each year, but the current annual allowance is $6000. Many repairs for homes or multi-family dwellings quickly go above and beyond.

Leaving at least 10% of your money in your IRA is essential for any emergencies that may arise. You don’t want to get caught with nothing in your account to cover your costs. The penalties are steep.

You may already have the money you need to start investing. Put your retirement savings to work right now and watch your cash flow grow!