I was at a seminar yesterday about investing in real estate (and other alternative IRA investments) with your IRA. Most investors or would-be investors don’t know that you can do this, and those that do know about it for the most part think its something new. Real estate investing with your IRA has been possible since 1974. Most IRA custodians, however, won’t hold real estate investments and their financial advisers don’t make much money from it so the option goes out the window. If you have IRA funds, or indeed any variety of funds that you can roll over into an IRA, you can invest them in real estate as long as you follow the guidelines.

What types of real estate can be put into an IRA?

Really almost any property type can be put in an IRA, what matters more is the use if the property.

• Raw Land
• Residential Property
• Condominiums
• Commercial Real Estate

A short list of disqualified investments are

• Buying a vacation home for your family
• Hunting on your IRA land
• Pie-de-terre that you use personally
• Any property that is for personal use

There are basically 3 ways you can invest in real estate with your IRA.

1. Your IRA invests directly in real estate through an outright “all cash” purchase.
2. Your IRA obtains a non-recourse loan. Meaning the only recourse to the lender is the specific property
3. Combine IRA and personal funds to increase purchasing power ( via an entity or as tenants-in-common)

There are other real estate related investments you can make as well, for example you can buy notes (mortgages), you can lend your IRA (like hard money), and you can invest in privately held businesses (except for Subchapter S-Corps).

While borrowing for an IRA purchase is more complicated to some degree it is not overwhelming. The biggest hurdle is the fact that you have to find non-recourse debt. Non-recourse debt generally will be more conservative meaning that you’ll have to put more money down to buy the property and the debt coverage ratio requirements may be more stringent.

When you buy real estate with your IRA the IRA owns the real estate. The rules of real estate and taxation do change to some extent within an IRA. For example you’ll generally not need to complete a 1031 exchange because the sale is not a taxable event as long as the money stays in the IRA. With an IRA, you only have to pay tax on any income or capital gains associated with the amount that is debt-financed at the time of the transaction, thereby sheltering the balance which goes into the IRA tax-deferred. In addition, much as with a taxable real estate investment, the UDFI calculation allows you to deduct certain expenses, including depreciation, when determining the amount of tax to be paid. See IRS form 990T.

Its important to note that you won’t be taking the cash-flow from any properties that your IRA owns, all the money stays in the IRA. At the same time you’re not paying any bills that may come up, your IRA is.

If you have retirement funds that aren’t performing like you’d like them to or if you find that you’re not diversified like you’d like to be in your retirement then you should investigate this strategy.

Email me and ask me for the free ebook that answers the 50 Top Questions Investors Have About Buying Real Estate With an IRA and I’ll be happy to send it to you. Leave a comment below and let me know you want the book. Or of course you can always call.