How to Use a Real Estate IRA to Passively Manage Your Wealth

Many people view real estate as one of the most labor-intensive ways to build wealth there is. If you’re a landlord, you have to actively manage a property, after all. But when you use a Real Estate IRA, you’ll find there are indeed many ways to enjoy this investment on a more passive basis—which is ideal for those who want a “buy and hold” property and don’t want to constantly check in on their real estate. Here’s what you need to know:

The Property Manager: A Necessary Feature of the Real Estate IRA

When you have a property within a Real Estate IRA, you’re using the laws and regulations of IRAs to keep your wealth protected. But this additional protection also comes with responsibilities. One of these chief responsibilities is to separate yourself from the tenants via a property manager.

Property managers can be very advantageous. Yes, they cost money, but they also allow landlords and property owners to only passively manage their properties. The day-to-day jobs including rent collection and addressing repairs are left to the property managers. This allows you to let your wealth grow without having to constantly check up on the state of your tenant and your property manager.

Within a Real Estate IRA, a property manager will be responsible for collecting rent income and paying the expenses. The profits will go into your retirement account on a tax-deferred basis, allowing your income to growth with the protections of an IRA.

If you enjoy letting your wealth grow more passively, then real estate doesn’t have to be an investment in which you are constantly checking up and maintaining your asset. Instead, you will be expected and required to work through a property manager—which, for many investors, is actually an advantage.

Keeping Up with the Rules

Passively managing your wealth including a Real Estate IRA means that you’ll want to adhere to the rules of Real Estate IRAs as well, including:

  • You and other disqualified people will be forbidden from using the property yourself. This means that you’ll live somewhere else while collecting any money from your real estate investments.
  • You cannot buy the property from yourself, which means that you’ll be expected not to make a lot of transactions with the goal of making yourself richer; instead, you’ll be expected to treat the property like any other property you own in this regard—you can’t buy it from yourself.
  • You will not be allowed to receive “current benefits” within a Real Estate IRA, which means that issues like real estate commissions will not be collected upon instantly within this account. In other words, it will be much like a “buy and hold” investment that you’re making for the future—which is intuitive to anyone who takes a more passive approach to their investments.

Getting the Most Out of Your Real Estate IRA

With these rules in effect, how can you be sure you’re getting the most out of your real estate? That same question could be applied to just about any real estate investment, but it’s important to remember that there are special considerations when investing in real estate through an IRA. One issue is that you use non-recourse loans when investing with a Real Estate IRA, which can sometimes limit your options but also allows you to have certain protections.

If you want to make sense of Real Estate IRAs and give yourself a leg up, continue browsing or simply call us at 828-257-4949. We’ll be glad to talk to you about the range of Self-Directed IRA options available to you.