My Personal Finance Journey

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"Real Estate IRA"

Contributed by mm | November 17, 2003 9:18 AM PST

This MSN Money story discussed how to use IRA to invest in real estate.

Basically, it is talking about setting up a self-directed IRA. By doing so, one can basically direct IRA money to whatever purposes, including taking possession of a property. Using it to buy investment properties, and all rental income can add to the IRA and grow tax free or tax deferred. All property value appreciation will have tax advantage too. However, one of the major drawback is mortgage will be very hard to obtain when IRA is the property owner.

Another thing of concern: I suspect if the property is purchased by a regular (pre-tax) IRA, the capital gains can be delayed, but will be taxed eventually. This may be unlike the normal property purchase by after-tax funds, where the first $500,000 capital gain is free from tax upon property sale. This point is not mentioned in the article but will put pre-tax "real esate IRA" to a potentially huge disadvantage.

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This Post Has Received 2 Comments. Share Your Opinions Too.


Bill Commented on April 20, 2004

As with any retirement investment, the goal is to have as much in your plan when you need to take it out. Real estate in your plan presents an additional investment opportunity which may work well for some people who understand real estate investing.

The $500K exemption is available only for your personal residence not investment real estate. Real estate in your IRA may not be used by you personally. It can only be an investment.

Lenders do not currently understand IRAs investing in real estate, but they are learning. Until they do, many of our customers partner with non-IRA buyers to make the deal possible.


Jeremy Commented on June 9, 2004

The problem with the self directed community is that there are a lot of misnomars that are not disclosed. Using your IRA through a self directed custodian can be very costly. Using your IRA through a self directed custodian can be a very slow process (unless you pay them an expedite fee) to make an investment. Using your IRA through a self directed custodian can limit your ability to participate in investments such as foreclosures and tax liens. Also understanding the rules that govern this industry is important. For many investors, using an IRA Facilitator can help enhance their self directed investing experience. IRA Facilitators are hard to come by, but a good one can be worth its weight in gold!



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