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How To Invest In Real Estate With Your IRA

It’s a little-known fact that you can invest your tax-deferred or tax-free retirement funds in real estate. Like returns from securities investments, the returns from an IRA real estate investment are realized tax-deferred in the retirement account, but unlike stocks and bonds, real estate is a tangible investment which the investor can see and have a direct hand in appreciating its value.

“Self-directed” simply means that you have complete control over selecting and directing your own IRA or 401(k) investments. This control requires a specific type of account, and it opens the opportunity to many nontraditional types of IRA or 401(k) investments. Under your direction, your IRA can buy real estate, notes, limited partnerships, commercial paper and many other types of assets. With the added investment options, diversity, and flexibility provided by a self-directed IRA or self-directed 401(k), you can potentially build wealth and secure your future
much more effectively than through traditional retirement plans.

To invest in real estate with your IRA, you must first create an account that supports investments in non-traditional assets. These types of  accounts are commonly known as self-directed IRAs. There are two ways to create a self-directed IRA

Self-directed IRAs with a self-directed custodian

These companies act very similarly to your existing IRA custodian, but they allow non-traditional investments. Self-directed custodians hold your IRA funds in their accounts and direct those funds on your behalf when you wish to make an investment.

For example, if you decide to purchase real estate with your self-directed IRA, you will apply for an investment through the custodian. Approval for this investment can take a matter of days or weeks, depending on the custodian with which you work. Once the investment is approved, the custodian issues a check directly to the seller for the purchase of the property.

Fees for self-directed custodial accounts are generally based on the value of the assets in the account (typically 0.5 percent of the total value), plus transaction fees which range from $5 to $200 per transaction, depending on how fast the funds are needed and the method of delivery.

Self-directed IRAs through a self-directed IRA/LLC

These accounts start out similarly to self-directed custodial accounts, but go one step further. Companies that offer self-directed IRA/LLC services will transfer your funds to a self-directed custodial account with a preferred partner, typically at a dramatic annual-fee discount. They will then prepare a customized limited liability company (LLC) on your behalf. The self-directed IRA/LLC company will then direct your retirement funds into the LLC. You can then readily access these funds through the LLC bank account.

Most self-directed IRA/LLC companies will instruct you to open a checking account for the LLC, which will enable you to make investments instantaneously. This means that once you have decided which property you wish to purchase as an IRA investment, you will simply purchase the property in the name of the LLC and will write a check directly to the seller from the LLC bank account.

Fees for self-directed IRA/LLC clients typically include a one-time setup fee, based on the complexity of the setup (multiple parties or multiple accounts can invest in the same LLC or different LLCs), plus a flat annual fee. There are no transaction fees or asset-based fees with these accounts.

Buying real estate as an IRA investment

Whichever account you establish, the process to purchase a piece of real estate as an IRA investment is fairly simple. You must make the purchase in the name of your IRA or in the name of the LLC, and you must pay for the property with IRA funds.

To learn more about self-directed IRA’s visit our partner who we work with to provide special packages and pricing for RESTORE 818 investment partners — Preferred Trust Company LLC.