Imagine it: an IRA that collects rent money, constantly adding to your long-term retirement wealth. But for many retirement investors, it’s not a daydream. It’s a reality. And it’s possible when you use a Self-Directed IRA for real estate investments, earning income on a tangible piece of property. Thanks to the tax protections of the IRA structure, you can collect this income into the account and grow your wealth tax-free. Depending on the account you choose, you may not even have to pay additional taxes on it when you withdraw it later in life.

But how do you use a Self-Directed IRA for real estate investments? Let’s get a little more specific.

Understanding the Basics of a Self-Directed IRA

You might be used to the traditional structure of retirement investing. You sign up with a traditional brokerage, use an account like a Roth IRA, and begin investing. You likely have a limited amount of options to choose from, but you’re happy to be using retirement accounts, at least.

But what if you’re not happy with your choices? A Self-Directed IRA can give you more options. If you work with a Self-Directed IRA administration firm like American IRA, you can simply direct us to make buy/sell transactions on the account’s behalf. This means more freedom. Want to include investments like single family home rentals, apartment units, or even commercial properties? It’s possible within the Self-Directed IRA.

Setting Up a Self-Directed IRA for Real Estate

First, choose your custodian. The custodian is the administrator who will carry out transactions on the IRA’s behalf. You’ll want to work with a custodian like American IRA who specializes in these types of accounts. The custodian will handle the paperwork and ensure compliance with IRS regulations. But ultimately, you retain control over the investment decisions.

Next, fund the account. Which method to use? That will depend on you. You have lots of options here, such as rolling over funds from an existing retirement account, making a direct contribution, or transferring funds from another Self-Directed IRA.

There’s also an optional step. You might establish an LLC. This gives investors checkbook control over their investments. This setup allows you to make real estate purchases more efficiently, but it requires additional paperwork and adherence to specific regulations. If you’re interested in this, reach out to us at American IRA and we’ll tell you what the process is like.

Choosing the Right Real Estate Investment

Once you have the account ready to go, it’s time to think about your next steps. What kind of real estate investment do you want? Here are some popular options:

• Rental Properties: Buying rental properties through an IRA can provide a steady stream of income and long-term appreciation. The key here? Your property should align with your investment goals and strategies.
• Commercial Real Estate: Investing in commercial properties like office buildings or retail centers can offer higher returns. But many of these properties can be more expensive, and the possibility of vacancy might be a bigger risk.
• Raw Land: Purchasing raw land can be a speculative investment. It won’t generate income, but if you buy the right land, the appreciation of the property can be substantial. Always research zoning laws, development potential, and local market trends before you dive in.

Want to learn more about how to use a Self-Directed IRA for real estate investments? When you self-direct, there are entire universes of investment possibilities within your reach, and real estate is only one of them. Reach out to us here at American IRA at 866-7500-IRA to find out more.