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self directed ira for real estate

Investing In Real Estate With Your IRA

As you know, real estate is at a 30-year low right now in many markets. Recent articles in the Wall Street Journal, New York Times and countless other publications have been stories about big Wall Street companies jumping in and 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, 401(k)s, etc., with the stock market?

The answer? 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’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

Self-Directed IRAs have been around for a while, and in the past several years, lots of people have realized that their IRAs aren’t 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’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
  • LLCs
  • Sub-C corporations
  • Real estate options
  • Some types of precious metals
  • … and the normal investments such as stocks that your normal IRA can invest in.

Basically, this opens it up so you can buy investment real estate with your IRA or be a private lender in real estate.

Are There Restrictions?

Yes, there definitely are. There are restrictions on what you do with the real estate if you buy and hold, what types of precious metals, and often times the “custodian” of the SD-IRA has restrictions on what they think you can and should invest in.

A custodian? What’s that?

Great question.

Self-Directed IRA Custodians

The U.S. government created the SD-IRA loophole to help investors take more control of their investments while 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 you have your IRA with. This company acts 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 your homework and find the custodian that’s right for you. Some have more expensive fees than others, and some give more flexibility than others. Here’s a few that we know and respect:

What To Ask A Self-Directed IRA Company Before You Work With Them

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

  1. What are your fees? Fees can vary wildly. Some charge an annual fee based on the value of the account, some charge a standard annual fee, some charge large setup fees, etc. Find out what works for you. 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? Some companies can take up to 30 days or more to fund an investment after you send it in for approval. Some SD-IRAs give you what’s called “true checkbook control,” where you actually get a checkbook that allows you to 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.
  3. 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 such as Schwab and SmithBarney put restrictions on what your account can invest in. Some don’t allow real estate while others do. Just ask.
  4. Is my retirement account eligible to roll over into an 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’re working with.
  5. 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 can take weeks or even a month or more to have your account setup complete and ready to invest. Don’t wait until you’ve 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 might 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 and take some time to educate yourself on the pros and cons of an SD-IRA. The websites listed 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 with us through our contact form or call us anytime at (816) 566-5011. We offer discount investment properties in Kansas City 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’ll talk about how we work with private lenders, as well.

Happy investing! We’re here as a resource for you, so don’t hesitate to connect with us anytime.