How You Can Invest IRA Funds in Real Estate

Real estate is a hot investment for all the right reasons. Housing markets across the U.S. have caught fire in the past five years and while mortgage rates remain low, banks are much more cautious about who qualifies. With inventory low and demand high, real estate represents a great investment not only for homeowners but for those seeking to rent the properties as well. Indeed, some of the investment opportunities involve upscale apartment complexes that cater to young professionals.

But many are wondering how they can break into these investments. One possibility involves using your IRA.

Self-Directed IRAs

Most IRAs are set up around a handful of mutual funds. They’re very conservative investments that offer minimal returns but aren’t likely to lose value either. In other words, they're safe.

Another option that real estate investors love involves rolling over the traditional IRA into a self-directed IRA. Self-directed IRAs (SDIRAs) offer far more choices for investment, including real estate.

Not only can you use your SDIRA to invest in residential and commercial real estate in the United States, but you can also invest in foreign properties. There are plenty of reasons to invest in property, aside from the potential profits.

Using Real Estate to Fund Your IRA

One of the major upsides of this approach is that the income generated by real estate can be added to your IRA without being taxed. The one caveat there is neither you nor a loved one can directly profit from it.

Here, the use of non-recourse loans can be beneficial. A non-recourse loan is a loan that is not guaranteed by anyone. There are a number of reputable non-recourse lenders. These loans allow an investor to purchase a property with 35% of the money down. For the price of one property, an investor can purchase three and use the income from that property to pay off the remainder of the debt. While it takes a bit of a hands-on approach to accomplish this, the gains are usually superior to more conservative investments like mutual funds. This allows investors to buy up more properties using their IRAs than they would otherwise be able to.

Real Estate Investments for Those that Don’t Want to Deal with Tenants

So you don’t want to deal with tenants. Fair enough. There’s another option that is available that allows you to still cash in on the thriving real estate market. Essentially, you can pool your IRA money with other investors who furnish private loans to those who do. These individuals are responsible for vetting the property, making the necessary repairs and renting it out to tenants. This strategy allows you to earn a passive income while cashing in on a fantastic real estate market.

Last Updated: 
March 17, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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