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Self Directed IRA - Real Estate
Does the IRS allow real estate in an IRA?
Yes. According to IRS.gov "IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option". To invest in real estate your IRA provider must allow it.
Why haven't I heard about real estate investment in IRAs?
Retirement investing has been dominated by the securities industry since 1974 but real estate has always been available as an asset. Until recently, it was hard to find an IRA administrator that handled real estate.
How do I buy real estate with my retirement plan?
You find the real estate asset that you would like your IRA to acquire. Remember that an IRA can purchase a property outright, can partner with other investors, or can secure a non-recourse loan to achieve the purchase price.
You negotiate the terms of the purchase. You fill out a Buy Direction Letter which directs us to sign closing documents and send funds from your IRA to close the deal. You will have selected a proper escrow/title company/attorney to work with us to close the transaction
Income is received by the IRA and expenses are paid in accordance with your instructions from the IRA.
Can I buy property as tenants-in-common with another IRA?
I have a 401(k). Can I invest that in real estate?
Your 401(k) plan may, at your direction, be invested in real estate if the investment provisions of the plan permit it. The employer establishes the plan for the benefit of the employees. The employer will have specific investment language incorporated in the plan, which states what options are available to the employee.
Do I need an LLC to purchase real estate with my IRA?
No, an LLC may be used to purchase real estate, but it is not required. Your IRA is its own legal entity and can purchase a property without having to establish an LLC to hold title.
Where do I find an investment property?
It's up to you to find the property. There are generally no limitations or restrictions other than that the property that your IRA purchases cannot be something you or any disqualified person currently own. If you need help finding an investment property, it may be helpful to consult a real estate professional.
Can I repair the property myself?
You may not personally do any work on the property, for pay or for free, and neither can any other disqualified persons or any company you or they own. Work can be done by anyone else, and you still have control over what you want them to do. Basically, you cannot personally put the paint on the walls but you can show the painter how to hold the paintbrush and tell him what colors you want where.
How do I find a lender?
Non-recourse lenders may be mortgage lenders, personal lenders, credit unions and community banks. Large institutional lenders usually do not lend on a non-recourse basis. Non-recourse Lenders may ask for additional down payment to make the loan-to-value ratio less. You may provide third party guarantors, as long as they are not disqualified NDIRA has a list of known non-recourse lenders. Contact us for details.
How long must my IRA own a property before selling it?
There are no time restrictions or limitations on buying or selling a property, you could choose to sell a property the day after closing.
Do I have to pay capital gains taxes if I sell the property?
No, because the property is owned within a tax deferred (Traditional IRA) or tax free (ROTH IRA) plan no capital gains taxes need to be paid. If there is outstanding leverage at the time of sale, UBIT may apply. Ask us for details.
Can I take property as a distribution and then live in it?
Yes, you may choose to take the property as a distribution from your IRA. Once the property is 100% in your possession you are free to use the property as you wish.
Can I buy foreclosed property using my IRA?
Yes, foreclosed property is purchased from the lender directly by directing the purchase through the IRA administrator. The plan makes the payment to the lender and the property is then titled in the name of your IRA.
Pre-foreclosures are negotiated with the owner of the property, as in any property purchase. The debt is paid out of escrow, and the property is then placed into the IRA plan.
How long does it take to purchase a property?
Because each case is different there is no set time line for a real estate transaction. However, an average time line might go as follows:
2 business days to get the account set up once we've received the application.
7-20 business days for funds to be moved via "rollover distribution" (This can be initiated prior to opening the account and the funds can be mailed in with application.) If funds are moved via "transfer" the process may take longer depending on your current custodian.
The time it takes to get the closing documents prepared depends on you and your broker(s).
We require all closing documents three full business days prior to closing. The documents will be received and reviewed in this time. If everything is in good order, the funds will be sent to the closing process.
I was told that you cannot leverage property in an IRA. Is this true?
No, you may have debt-financed property in your IRA as long as neither you nor any other disqualified person personally guarantees the debt.
How do I know if tenants are making payments to my account?
You may receive checks that are made payable to your New Direction account and forward them on to New Direction, or you can have a third party servicer (other than a disqualified person) receive the payments and make a net check payable to your account.
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