Using your IRA for Real Estate Investing
Please note:
This information and links in this article are provided as a service
to the visitor. Information in this article and at these sites is
subject to verification, and although I deem this information to be
reliable, I assume no liability for inaccurate information presented
by these sources.
A Few Words about Real Estate Investing
As with any
other investment, a real estate investment carries the risk of loss
as well as the potential for profit. Please read my primer on the
subject of investing in real estate to get a broader picture what
this involves.
The self-directed IRA
At the heart of using IRA funds
for real estate investing is the self-directed IRA. This can be a
traditional IRA or a Roth IRA, but instead of having the funds invested
in a money market or mutual funds, the funds are placed in a trust
fund, and then disbursed by the trust to purchase the property or
properties of your choice. The profits from rental income or subsequent
sale of the property are held in the trust and treated the same as
profits from from a traditional or Roth IRA, depending on the type
of IRA you have chosen. In order to do this, you must find a company
that knows the laws regarding self-directed IRA's and how to set them
up. A Google search for "self-directed IRA" will yield plenty of results,
but if you would like to do business with a Texas-based company, I
would invite you to consider Sterling Trust Company. They are based
in Waco, and offer a wide range of financial services. You can find
out more about this company and about self-directed IRA's at their
web site at www.sterling-trust.com.
Some of the Advantages
If recent
revelations about mutual fund operations are disturbing to you, or
if you feel you can do better investing in real estate than other
options available to you, this approach gives you the opportunity
to have greater control over your investments. Profits are treated
the same as profits from other IRA's, reaping the same tax benefits
as in these more traditional investment vehicles.
Some of the Disadvantages
You
cannot write off depreciation on a property held in a self-directed
IRA, so it is important to chose a property where losses to depreciation
are expected to be minimal. As with any investment account there are
administrative fees which will affect your overall return. You should
familiarize yourself with all of these factors when deciding whether
this approach to investing is right for you.
Some of the Limitations
You
can't use this method to buy a piece of property you already own,
a principal residcnce or vacation home, and you can't buy from your
spouse, family, or children. Basically, these transactions have to
be what are known as "arms-length" transactions. You can learn more
about buying real estate in your IRA at http://www.realtor.org/rmomag.NSF/pages/featuresept03ira.
This article goes into much greater detail on the subject.
In Conclusion
If
you have been considering investing in real estate, this is one good
way to provide the capital for doing so. Keep in mind that, like any
investment, you run the risk of loss. Consider your options carefully
and make sure you understand the process and its limitations. Use
caution, employ qualified professionals to assist you, and take nothing
for granted.
