Did you know you could invest in real estate with your retirement accounts? That’s right! You can buy real estate for a quick resale, or buy and hold it using your Individual Retirement Account (IRA), Roth IRA or SEP-IRA.
With the possibility of the stock market retreating from its current highs, you may want to diversify your portfolio to include an investment in real estate. The cash flow rate of return on single-family rental homes can be more than 20 percent at today’s prices, and when the property sells, the net profit will remain in your tax deferred retirement account.
You can find a good IRA custodian by searching “real estate IRA” or “self-directed IRA.” Typically, most IRA custodians will allow you to purchase raw land, residential properties or commercial buildings for your portfolio. We prefer single-family residential because of its relative ease to sell or rent for an immediate return on investment.
Unfortunately, Internal Revenue Service regulations will not permit you to use the property purchased as your primary residence or as a vacation home. The underlying premise for any IRA fund-purchased real estate investment is that you can’t have any personal benefit or use of the property. To do so may cost you plenty in penalties and taxes, and call into question your other dealings with that IRA account.
Your IRA custodian—not you personally—must actually purchase the property. The title will be in the name of your IRA custodian with you as the beneficiary. All repairs, property taxes and rents must only be paid to and from the IRA custodian’s account.
Investing in real estate has big risks and the potential for big returns. Before investing, please consult with a certified public accountant, your attorney and a realtor experienced with these types of transactions.
By Kurt & Sheila Johnson, contributing writers and top-producing real estate team in Towne Lake.