We get asked questions all of the time from other savvy investors who we work with.
Most of the questions surround buying investment properties Nationwide… which we of course know a lot about.
But one part of buying an investment property / rental property is how are you going to pay for it?
And, can you use your IRA or Solo 401K to buy local investment properties?
Self Directed IRAs for Real Estate – Can You Use Them To Buy Rental Properties?
First off, IRA refers to an individual retirement account.
IRA’s traditionally hold investments like stocks, mutual funds, etc…. mainly because that’s the mainstream way most people save for retirement.
But, since you’re reading this article you know that real estate can be a GREAT option for increasing your wealth.
But… how can you use your IRA to grow your retirement fund, earn the tax benefits of the IRA, and the benefits of Nationwide real estate too?
Though the self-directed ira real estate is increasingly being taken up by investors, you should do certain things ensure that the law is being followed to the letter when you use your IRA for local real estate investments.
Solo 401K for Self-Employed Individuals
A Solo 401K, is a 401(k) qualified retirement plan for Americans that was designed specifically for employers with no full-time employees other than the business owner(s) and their spouse(s).
Self-employed workers who qualify for the Solo 401(k) can receive the same tax benefits as in a general 401(k) plan, but without the employer being subject to the complexities of ERISA.
Just like with Self-Directed IRA’s, a Solo 401K can be used to invest in real estate as well, and has many tax benefits to doing so.
Some Rules when using SDIRA (Self Directed IRA) & Solo 401K to Invest in Real Estate
No “Self Dealing”
If you’re using your Self-Directed IRA, or solo 401K for real estate you are forbidden from self-dealing.
Self-dealing is outlawed in the sense that it can’t purchase land or property (both commercial and residential) for the owner or any family member to reside in.
It is also prohibited from selling property or land to the owner of the IRA/401K or family members in the process of business dealings.
The Process of Buying Real Estate with Your Self Directed IRA or Solo 401K
There are very specific rules that you have to follow if you’re using your SD IRA or Solo 401K to pick up investment properties.
Once you provide the correct documentation for purchasing the investment property to the self-directed ira custodian, the custodian will start the purchasing process on behalf of the self-directed ira real estate.
All the costs related to the purchase of the property are channeled through the self-directed ira for real estate; hence it’s vital that it must have enough cash to pay for these costs.
Failure of this will lead to the forfeiture of tax benefits and the penalties to be paid by the IRA.
Choose The Type Of Self Directed IRA Wisely To Use It For Your Real Estate Investments
There are lots of options when it comes to self-directed IRA’s, and Solo 401K.
Not all SD IRA’s allow you to buy real estate in them… so you’ll have to do your research to find the best SD IRA custodians so you can start buying investment properties in it.
Some Self Directed IRAs have more restrictions than others.
As an example… some of them require that you submit the investment details to them… they analyze it… then they send the cash from the account.
But there are accounts for both IRA’s and Solo 401K that give you what’s called “check book control”.
An investor in a self-directed ira or Solo 401K for real estate with control of the checkbook is able to make purchases by just writing checks rather than having to go through the lengthy process of having to pass it through a seperate custodian first. This lets you take advantage of deals that you have to act quickly on (which many investment properties go fast).
Your Role In The Investment After The SD IRA or Solo 401K Purchases It
You as the owner or trustee of the account has the ability to really manage the investment in a hands on manner. The roles include: receiving checks for rent payments from tenants, managing the properties, etc… everything you’d normally do as the owner of an investment property.
Of course, there are more guidelines that you have to follow if you plan on using your self directed IRA or Solo 401K for real estate… so make sure you do your homework and do these two things immediately:
- Find a great self directed IRA company / custodian: This is the first step. You have to get this in place before you even think about purchasing anything through your IRA or Solo 401K. If your current holder won’t allow you to buy and hold real estate in it… Don’t worry, there are some people less experienced who do not know this is allowed, if set up correctly. Contact Us and we’ll refer you to someone who specializes in setting these up for real estate investing… and they’ll be able to help you transfer your current IRA to your new self directed IRA or Solo 401K.
- Find a couple great investment properties from a company like FOMRE (Find Off Market Real Estate). One of the best ways to locate great properties is by working with a professional investment property company, or connecting with a network of many. FOMRE is a new advertising company that was established to help Real Estate Investors “Find Off-Market Real Estate” investment opportunities. We specialize in connecting Accredited Investors, who are actively seeking to “purchase” Discounted Real Estate Investments, with other Investors, Homeowners, & Wholesalers, who are looking to “sell” their own off-market properties. Call us the “Classified Ads of Off Market Real Estate”, not posted on the MLS.. Learn More Here >>
We Can Help You Get Rolling With Locating Off-Market Properties in Any US Market.