Real Estate Investments

Real Estate Investments

What is the difference between buying real estate for myself and buying real estate as an investment for my Self-Directed IRA?

There are four differences between purchasing real estate for your Self-Directed IRA and for yourself:

  1. Title: When purchasing an asset for your Self-Directed IRA, it must be titled to your IRA by specifying the [Custodian Name] FBO [Your Name], where FBO is “for the benefit of.”
  2. Funding: Funds must come directly from your Self-Directed IRA when purchasing real estate as an investment for your IRA. With checkbook control, you write the check and submit it directly to the title company/closing agent/attorney as required.
  3. Income & Expenses: Expenses incurred for the investment must come from the Self-Directed IRA. You simply write checks for these and maintain accurate accounting for tax purposes. Income generated by an investment must be deposited into the IRA account and recorded accordingly.
  4. Signatures: Documents pertaining to your Self-Directed IRA investments must be signed by the Custodian of the IRA.

May I purchase real estate with my Self-Directed IRA that I already own?

No. This is considered a prohibited transaction according to the Internal Revenue Code 4975. You may not purchase a property, or interest in a property, currently owned by a disqualified person, including yourself and family members of lineal descent.

Can my Self-Directed IRA purchase real estate from my corporation, partnership or LLC?

No. This is considered a prohibited transaction (see above).

May I live in or work in a property owned by my Self-Directed IRA?

No. This is considered a prohibited transaction (see above).

Can I pay funds directly to a seller?

Yes. With a checkbook controlled Self-Directed IRA, you are in complete control of the funds. There are no fees to access YOUR money, and no hoops to jump through or time delays.

How fast is the purchase generally completed?

Situations vary, but with a checkbook controlled Self-Directed IRA, the normal 3 to 5 business days for “processing” by the IRA Custodian is bypassed, not to mention there are no “special service fees” for expediting your request…You are in complete control.

If I purchase rental property with my Self-Directed IRA, does all of the income need to go back into the IRA?

Yes. All income generated by Self-Directed IRA investments, including rental properties, must be returned to the IRA, otherwise, you are at risk of losing your tax benefits and may be penalized for self-dealing.

How does the rental income actually get into my IRA?

Your checkbook controlled Self-Directed IRA is run as a business, specifically an LLC, that you manage. Rent checks are deposited directly into your IRA’s checking account in the same manner that you would if you managed the rental property personally.

May I use funds from my Self-Directed IRA to renovate property the IRA owns?

Yes. All expenses for the maintenance, management and renovation of the real estate investment property may be paid from your Self-Directed IRA’s checking account. Be sure to keep accurate records for tax purposes.