self directed ira for real estate

Investing In Real Estate With Your IRA

Did you even know that it’s possible to invest in real estate with your IRA?

Many people do not know. Many people just listen to the financial sales person who sells them their life insurance or mutual funds or CD’s.

Maybe you’ve seen the recent articles in the Wall Street Journal, New York Times, and other publications about big Wall Street companies buying real estate rather than stocks… because they know they can get a better return.

So, why are most Americans still trusting their own retirements… IRAs… 401ks… with the stock market? Why don’t they at least partially diversify into real estate?

Answer is, they don’t know any better.

Before we dive into this topic…remember, we are not financial advisors and by no means should this guide be meant to act as financial, tax, or legal advice.  It’s for informational purposes only. Consult your own professional advisors before you make any financial choices like this.

The Self-Directed IRA for Real Estate

You’ve probably heard of a Self-Directed IRA.  They’ve been around for years. Of corse, for the past several years many people have seen that their IRAs aren’t earning much (sometimes even losing money).  So, 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’s a retirement account that has the same tax benefits as a normal IRA… but, you have more flexibility in deciding what you want your IRA to be invested in.

You can invest in…

  • Real estate (commercial, income generating rental property, rehabs, etc.)
  • Promissory Notes secured by mortgages (i.e. – private lending)
  • Tax lien certificates
  • Limited partnerships
  • LLC’s
  • Sub-C corporations
  • Real estate options
  • Some types of precious metals
  • … and stock market investments like stocks and mutual funds too.

So what does this mean? Basically, this opens up opportunities for you to buy investment real estate with your IRA… or be a private lender in real estate in addition to stocks and mutual funds and CD’s.

Are There Restrictions?

Yes, there definitely are.  There are restrictions on what you do with the real estate, if you buy and hold versus rehab and sell, what types of precious metals, and other things. Also the “custodian” of the SDIRA has restrictions on what they think you can and should invest in.

Where does a custodian come into the picture? What do they do?

Self-Directed IRA Custodians

The US Government created the SD-IRA 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 don’t want people setting up these SD-IRAs and just doing whatever they want.

So there is a barrier that they have to have in place… and thats 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’re 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.

Do some research to discover which custodian is the right fit for you.  Here’s a few that we know and respect:

Remember: Some custodians have more fees than others… and some give more flexibility than others. You should compare them to find which one works best for you.

What Should You Ask A Self-Directed IRA Custodian Before You Work With Them?

Before you sign on with a SD-IRA company… ask them a few key questions.

  1. What are your fees?  Fees will vary. You find that some have annual fees based on the value of the account. Some charge setup fees. Find out what works for you. But, the idea is that by being able to invest in real estate with your IRA… you’ll more than make up for the fees you’re paying with your higher returns.
  2. What’s the process for approving an investment? Does the custodian have to “approve” each investment? And how long does that take? Some companies can take up to 30 days+ to fund an investment after you send it in for approval. Other custodians give you what’s called “true checkbook control”. That’s where you get an actual checkbook and you write checks from your IRA account… which gives you immediate access to the funds (i.e. – to close a deal quickly). Find out what type of set up you like best.
  3. Are there any restrictions on what I can invest in? I want to invest in real estate and make private loans. Some Self-Directed IRAs with larger more traditional companies like Schwab and SmithBarney put restrictions on what your account can invest in.  Some don’t allow real estate… while others do. Just ask. Because if their main business is selling stocks and mutual funds then they usually don’t allow their customers to invest their money in real estate.
  4. Is my retirement account eligible to “roll over” into a SD-IRA? That’s a question that you need to ask your financial advisor or the company who holds your retirement account. 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’re working with. Also, ask how it is done so you follow the correct procedures. Some companies will take care of the transferring process for you.
  5. How long will it take for my account to be up and running and have funds available for investment? If you want to invest in real estate or private lending using your IRA, then start the process now. Don’t let a large financial company slow you down. Don’t let them take weeks or months. Follow up when you are transferring funds from one account to another. Get your self-directed IRA set up now so you are ready when an investment opportunity that you like arises. Some people wait way too long to get this process rolling and they miss out on some investments. If you know you want to use your IRA to invest in real estate, start now.

Getting Off The Sidelines And Getting Your Money Working For You

If you feel a that your current IRA is not working for you like you want it to, then now may be the time to open a Self-Directed IRA. You don’t have to use every penny of your entire savings. You can start with a portion and invest in things that you are comfortable with. That may be real estate.

Take control of your savings. You are the legal owner of your assets. If the unpredictable stock market scares you, then consider a Self-Directed IRA that you control. The ups and downs of the stock market does not have to control how much your savings looses or gains.

Educate yourself on the pros and cons of a SD-IRA. Those websites above are a great place to start. Look for the “resources” and FAQ’s on each of the websites. Learn more about self-directed IRAs and how you can use them to invest in real estate.

Maybe you have questions about how you can work with us as an investor. Just call us at (888) 552-3112 or use our contact form. We offer discount investment properties in Milwaukee and the surrounding areas to investors who often buy them and keep them as rentals.  Also, for those qualified investors who are interested in private lending…contact us and we’ll explain the ways we routinely work with private lenders.

You can always consider us as a resource to answer questions that you have so don’t hesitate to connect with us anytime.