Real Estate IRAs: Important Rules to Remember

Real Estate IRAs

Real Estate IRAs can be one of the most important tools in your “investment toolbox” when it comes to adding diversification and security to your retirement portfolio.

But despite the advantages you have in an IRA of this type, you’ll find that there are some rules you’ll want to know before you even begin–and these rules can help shape the strategy you undertake in building a retirement nest egg for you and yours.

Are these rules overly restrictive or prohibitive? You’ll find that many of them not only make sense, but can actually help you become a more disciplined investor. There may be some rules you find restrictive when it comes to your individual investment style, but you’ll find that many of the benefits of Real Estate IRAs can outweigh these restrictions.

That being said, it’s important for anyone interested in Real Estate IRAs to know them like the back of your hand. This won’t only help you navigate the world of Real Estate IRAs, but will help you make sense of the real estate market as a whole:

[tweetthis twitter_handles=”@iraexpert” hidden_hashtags=”#RealEstateIRAs”]This won’t only help you navigate the world of Real Estate IRAs, but…[/tweetthis]

Basic Restrictions of Real Estate IRAs

First things first: restrictions.

When people hear a phrase like “restrictions,” some have a negative reaction. Some are discouraged from making an investment altogether. Others, however, have a more proactive approach: they want to know the restrictions so they can begin investing legally and as securely as possible. Try to keep a positive attitude and you’ll find these restrictions aren’t particularly limiting:

  • Property use is limited; you and other qualifying persons won’t be able to use the property in which you invest. For many, this was the plan all along, and isn’t a major determinant in whether or not they’ll use a Real Estate IRA altogether.
  • Property purchasing can be limited, specifically to buying property from yourself or other qualifying persons. This prevents you from shifting real estate you purchased outside of an IRA and bringing it into the context of your own IRA.
  • Investments must be made for your retirement account, not for your current wealth benefit, which means that you shouldn’t expect to use all of the IRA advantages to enhance your current status. Your aim should be at creating an effective retirement portfolio.

For more information about limitations, be sure to visit our Real Estate IRA page or call us at 1-866-7500-IRA(472).

Other Rules in the Real Estate IRAReal Estate IRAs

  • You can use leverage to purchase within your Real Estate IRA, which means that you can borrow money to make such a purchase. There is a limit here: it has to be non-recourse financing. Be mindful that non-recourse financing and unrelated debt income tax rules apply.
  • Your property manager is responsible for collecting rental income, paying expenses, and the profit should only go into your retirement account. Many investors who wanted to use a property manager in the first place don’t find this to be restricting.
  • You can own real estate through a Roth IRA, which of course gives you the same benefits of the Roth IRA.

When you learn more about Real Estate IRAs, you find out that they’re not all that different from investments in any other IRA. Sure, there are some specific restrictions and rules, but many of the same tax benefits you get from IRAs is just as applicable in a Real Estate IRA as any other IRA. That’s one thing that attracts so many investors to the Real Estate IRA for their retirement portfolio; but as you see here, there are plenty of reasons investors might want to consider expanding the portfolio and diversifying with some real estate in their overall investment strategy.

 

 

 

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