Real estate holdings in IRAs are a favored strategy individuals use to build retirement wealth.
There are investors out there who can invest in these assets while blindfolded, but many others
are unsure how to get started. If you fit into the latter category, this article’s just for you. It’s a
beginner’s guide you’ll find handy to learn how you can invest in real estate with an IRA to earn
tax-sheltered income for your future.
The term “real estate IRA” is used to describe self-directed retirement plans that hold real
estate assets. A self-directed account gives you the right to choose your own investments. You
don’t rely on a third party to make decisions for you, and you’re not limited to the stressful
world of stocks or the boring realm of bonds and mutual funds. You are free to invest in
alternative options like private equity and precious metals, but for the sake of this article, we’re
going to focus on real estate investing.
What’s so special about real estate investments?
Real estate delivers diversity to your portfolio by way of a tangible asset that has the potential
to earn income at a faster pace than traditional assets.
Additionally, there is a broad list of options in real estate investing. Residential and commercial
property, rehabs, rentals, private lending, land, and even tax liens are common examples.
Rental property is the front-runner, delivering a steady flow of income over time.
Monthly rent payments are deposited into the IRA, tax free. You also have the option to sell later when
the property has hopefully appreciated, presenting another boost of tax-sheltered income.
Because your IRA owns the property, there are some rules you must follow. All expenses must
be paid with IRA funds, and you can’t personally pay expenses then reimburse yourself from
the IRA later. You cannot personally perform repairs on the property, either. This is considered
sweat equity, which is prohibited in an IRA.
Rehab-and-flip investments are well-known favorites for quick returns.
Many people enjoy today’s reality TV shows that give real-life examples of how rehabs work—and the process is
nearly identical when you invest with your IRA. The only difference is your IRA owns the
property and must pay for all expenses, such as hiring contractors to perform work. Upon the
sale, all proceeds are deposited into the IRA without incurring capital gains on the profit.
Private lending creates diversity and earns income on interest payments.
This is an ideal transaction for borrowers seeking mortgage financing. Your IRA plays the part a bank would in
extending loans to borrowers that you fully vet. Principal and interest payments are made to
the IRA, but you call the shots on the terms of the security of the loan and the repayment details. The property is generally held as collateral in case of default and can then be sold for additional profit.
If you find a promising asset but lack adequate funds in your plan to make the purchase, your
IRA can partner funds to invest.
Partnering funds to invest is an excellent strategy to score more lucrative holdings and also to
offset expenses related to an asset. You can partner self-directed funds with your personal
funds, and/or with another person’s personal funds, or with another IRA to invest in real estate.
Ownership is assigned based on the percentage of the buy-in each investor contributes.
Expenses are divvied up in the same manner.
Contact Advanta IRA Services to set up an IRA:
Advanta IRA — Self-Directed Retirement Plans
About the author
Scott Maurer is the Director of Business Development for Advanta IRA, a company with over 15 years of
experience and success in the self-directed retirement plan industry. The firm allows clients to invest
their plans into assets that they know and control, like real estate. Advanta IRA is committed to
delivering unparalleled customer service to all clients. The company also maintains an unrivaled
educational platform that includes weekly seminars and webinars, blogs, case studies, and videos to
help clients and other individuals learn how to maximize retirement wealth using alternative