When investors first learn they can invest in Real Estate through an IRA, it can be a transformative experience. They realize that the retirement avenues available to them are more numerous than they initially thought. And if they have experience with Real Estate investing, they know they can leverage that experience within the tax benefits of a Self-Directed IRA to grow their wealth aggressively. However, it does lead to a question: just what kinds of Real Estate assets can investors put in a Self-Directed IRA, anyway? Are there limits, such as not using farm Real Estate?
Here at American IRA, we always like to keep people in the loop. That’s why we offer a section on Real Estate investing right here at our website. But before you go digging in, here’s a brief primer on what you’ll need to know.
The Types of Real Estate Assets Possible in a Self-Directed IRA
First, there’s good news: there are so many possible Real Estate investments within an IRA that it’s probably easier if we tell you what you can’t use. But let’s get clear about the possibilities you have when you open a Self-Directed IRA for yourself:
- Single Family Homes
- Multi-Family Units
- Apartment complexes
- Tax liens
- Mortgage notes
- Commercial property
- Undeveloped/raw land
- Farm Real Estate
In other words, the options pretty much run the gamut of available Real Estate. Of course, what you ultimately choose will be up to you—it is a Self-Directed IRA, after all. But as you learn what you can do within a Self-Directed IRA, you’ll likely discover that there are plenty of options for you to leverage your know-how and experience, no matter what the asset.
Even so, that leads to another question. Are there things you can’t do with Real Estate within a Self-Directed IRA?
What Investors Can and Can’t Do With a Self-Directed IRA
Many investors might not be used to the specific limits of a Self-Directed IRA because they haven’t had to think about them before. But with a Self-Directed IRA, especially when investing in Real Estate, it’s important for investors to know that there are rules designed to keep investment accounts and personal accounts separate.
Perhaps the most important rule of thumb is that investors should use Self-Directed IRAs in a way that does not use disqualified persons to interact with or transact with. For example, if you were to purchase a multi-family unit within a Self-Directed IRA and then live there, this would be prohibited. You would be realizing immediate personal gain from your investment, which is not the intention behind a retirement account. Since the tax benefits of retirement accounts are designed to keep investors investing, it means that these investments do have to be designated for retirement use.
Another way investors can run afoul of the rules is to rent out a piece of retirement Real Estate to someone they are directly related to, such as a son or daughter. This would also create a personal benefit for the owner of the Real Estate. Instead, investors will be expected to work through property managers and rent out to people that provide you with no immediate personal benefit, thus keeping your investment properties separate from your personal property.