Investing In Real Estate With Your IRA | IRA Investing
As you know, real estate is at a 30 year low across many markets right now. The Wall Street Journal, New York Times and countless other noteworthy resources have published stories citing the trending of massive publicly traded Wall Street companies buying Real Estate rather than stocks. Why… because there is a better return on investment.
If that is the case, why are most Americans still trusting their 401K and IRA retirement accounts with the stock market & mutual funds?
The answer is… they don’t know any better.
Before we dive into the good stuff… remember, we are not financial advisors and by no means should this guide be meant to act as financial, tax, or legal advice. It is for informational purposes only. Please consult your personal professional advisors before you make any financial decisions like the one we are about to share with you below.
The Self-Directed IRA for Real Estate | IRA Investing
There is something called a Self-Directed IRA, which has been around for a while… and in the past several years, a lot of people have realized that their IRAs are not earning them a darn thing (sometimes even losing money). So, those people (maybe this is you) have started to look for other ways to earn better returns with that same IRA.
Enter the “self-directed IRA”.
A self-directed IRA is simple. It is a retirement account with the same tax benefits as a traditional IRA… but offers owners more flexibility in terms of investment choices and what investments you want to allocate your investment funds.
With a SDIRA You can invest in…
- Real estate (commercial, income generating rental property, rehabs, fix and flips, etc.)
- Promissory Notes secured by mortgages (i.e. – private lending)
- Tax lien certificates
- Limited partnerships
- Sub-C corporations
- Real estate options
- Some types of precious metals
- … and the traditional investments like stocks and mutual funds that your normal IRA can invest in as well
Basically, the SDIRA allows you to choose real estate opportunities as investment options using the money in your IRA account… or, like me, you can become a private money lender in the Real Estate Investing game, and loan your money out to folks interested in fixing, flipping or renovating real estate for profits.
Are There Restrictions?
Yes, there are restrictions you will need to know in order to protect yourself. Basically, there are rules and limitations on what you can and cannot do with your Real Estate Investment. Your SDIRA “custodian” will make sure you stay within the rules and provide advice and recommendations on how you can invest your capital wisely, for a nice annual return or profit.
A custodian? Whats that?
Self-Directed IRA Custodians
The US Government created the SD-IRA loophole to help investors take more control over their investments while at the same time still getting the tax benefits. But, at the same time… they do not want people setting up these SD-IRAs and just doing whatever they want with them either.
So, there is a barrier the Federal Government has in place… and that barrier is the Custodian.
The custodian is usually the Self-Directed IRA company who you have your IRA with. They act as the “go between” when you are going to make an investment. Many custodians have guidelines on what you can invest in, how long it will take for you to actually make your money work for you once they approve the investment… etc. Some custodians are more passive… and let you actually have a checkbook where you can write checks from your SD-IRA to make investments.
You should do your homework and find the custodian that is right for you. Here’s a few company links that we know and respect:
- Horizon Trust – Horizon Trust
- Guidant Financial (expensive, but gives you checkbook control, which is huge) – Guidant Financial
- Equity Trust – Equity Trust
- Entrust – The Entrust Group
Do some research to find the right fit for you.
Some have more expensive fees than others… and some give more flexibility than others.
What To Ask A Self-Directed IRA Company Before You Work With Them
Before you sign on with a SD-IRA company… ask them a few key questions.
- What are your fees? – Fees can vary wildly. Some charge an annual fee based on the value of the account, some charge an annual fee, some charge large setup fees, etc. Find out what works for you. But, the idea is that by being able to invest in real estate with your IRA… you will more than make up for the fees you are paying with your higher returns.
- What’s the process for approving an investment? – Some companies can take up to 30 days+ to fund an investment after you send it in for approval. Some SD-IRA’s give you what’s called “true checkbook control”, where you actually get a checkbook where you can write checks from your IRA account… which gives you immediate access to the funds (i.e. – to close a deal quickly). Checkbook control usually is a tad more expensive to set up than an IRA account that requires all investments to go through the sometimes lengthy custodian approval process, but again… find out what’s best for you.
- Are there any restrictions on what I can invest in? I want to invest in real estate and make private loans. – Some SD-IRAs with larger more traditional companies like Schwab and SmithBarney put restrictions on what your account can invest in. Some do not allow real estate… while others do. Just ask.
- Is my retirement account eligible to “roll over” into a SD-IRA? – Not all retirement accounts can be rolled over into a self-directed IRA. Most IRAs can be… and even some 401(k)s can be. Just ask your financial advisor and ask the representative at the SD-IRA company you are working with.
- How long will it take for my account to be up and running and have funds available for investment? – Some people wait way too long to get this process rolling. If you know you want to use your IRA to invest in real estate… get the ball rolling on getting it rolled over into a SD-IRA account asap. Some companies may take weeks or even over a month to have your account setup complete and ready to invest. Do not wait until you have found a great real estate deal to get started… get started today so your funds are ready to invest when you need them.
Getting Off The Sidelines And Getting Your Money Working For You
If you feel a self-directed IRA may be a great way for you to invest a portion of your retirement in things you know (rather than the unpredictable stock market)… then dive in, take some time to educate yourself on the pros and cons of a SD-IRA (those websites I put above are a great place to start. They have all kinds of resources to learn more about self-directed IRAs and how you can use them to invest in real estate).
If you have any questions on how you can work with us as an investor… just connect w/ us through our contact form or call us anytime at: (412) 529-1783. We offer discount investment properties in Pittsburgh and surrounding areas to investors like you who often buy them and keep them as rentals. Also, for those qualified investors who want to explore private lending… contact us and we can discuss how we work with private lenders as well.
Happy investing! We are here as a resource, so please do not hesitate to connect with us anytime.