Investing In Real Estate Using Your IRA

At GoRealEstateInvestor.com we are HUGE fans of investing in real estate using your IRA.  Anytime an investor can defer or eliminate taxes are a good thing and our investment team loves showing investors how to buy discounted Arizona properties using their retirement accounts.  Although this process might seem difficult at first, it is actually quite simple.  The key is understanding what type of IRA account you must have as well as which custodians work best when investing in real estate.  After you get done reading this article, if you are interested in learning more about using your IRA to invest in real estate then contact one of our investment specialists for a one on one consultation on this money-making strategy!

WHAT IS AN IRA?

IRA stands for Individual Retirement Account.  In essence an IRA is similar to a typical savings account only with tax breaks providing incentives for Americans to prepare for their retirements.  Other IRA benefits include tax-free profits, tax deductions, asset protection and estate planning.  We must stress the comparison to a savings account because the common mistake, people typically make are to consider their IRA itself as an investment.  The IRA is only the vehicle in which you hold investments such as stocks, bonds, mutual funds and other assets.  Section 408 of the Internal Revenue Code permits investing in land, commercial property, residential property, private equity, tax liens, franchises, trust deeds, and real estate contracts with funds held in your IRA.   The most common IRA’s chosen are a Traditional IRA, a Self Directed IRA (Roth) or for employees a Simplified Employee Pension Plan or SEP-IRA.

When investing in real estate we believe that a Self Directed IRA (Roth) is your best choice followed by a SEP-IRA if you are an employee, and lastly the Traditional IRA.  A Self-Directed IRA gives you the most flexibility and speed needed to make quick decisions when investing in Arizona investment properties.  Most individuals start out with a 401k or SEP-IRA because you can contribute the most money per year towards your savings.  When they are ready to invest in assets other than the traditional stocks, bonds, and mutual funds many convert their savings to a Self Directed IRA and begin investing in real estate!

A FEW WORDS OF CAUTION BEFORE WE PROCEED!

Here is a good place to put a warning.  While using your IRA to invest in real estate is a beautiful thing, you must be made aware of some downsides to this investing strategy.  First, there are severe tax penalties if you buy real estate with your IRA and break the rules or guidelines set forth by the IRS.  You cannot use real estate owned as a principal residence, vacation home, or business base.  You cannot take the usual deductions of owning real estate that investors are used to when purchasing outside of an IRA.  All rental income/profit and expenses must be run through and held in the IRA.  Lastly no lineal family members could have owned the property you are purchasing at any time.  This means that you, your spouse, or your kids cannot have owned the property before purchased by your IRA.

INVESTING IN REAL ESTATE USING YOUR ROTH IRA.

Step 1: Choosing A Custodian

The IRS requires that a qualified Trustee or Custodian manage, oversee, and hold the assets of the IRA on behalf of the IRA owner.  Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner for the life of the IRA account.

Choosing the right Custodian is important because in today’s real estate market speed is everything if your going to get the best deals on discounted properties.  Having a Custodian that understands real estate investing and that has a streamlined paperwork process can make your job as an investor so much easier.  Pensco Trust, Entrust, and Equity Trust Co. are some Custodians to consider shopping.  Ask them to see their paperwork as well as their turn-around times for distributing the funds.  Also ask them if they service your rental properties (collect rents) or if you need to go to a third party such as www.goRENTER.com for your Arizona property management needs.

Step 2: Finding An Arizona Investment Property

Can you guess who we want you to use to find your next investment / rental property?  That’s right; GoRealEstateInvestor.com has one of the largest inventories of available Arizona investment properties in the Phoenix-Metro area.  We aggressively research, find, analyze, and acquire cash-flowing rental properties all over the valley and sell them to investors at HUGE discounts!  Our investment team will sit down with you and create a customized investment strategy that fits your financial goals and go to work fulfilling your needs by providing the investments that fit your criteria.  No more wasting time hunting down good deals…leverage your time by utilizing our resources.  We buy at auction, from asset managers, from banks, and direct from motivated homeowners that need to sell fast.   Simply set up an appointment for an investment consultation and visit the GoRealEstateInvestor.com website regularly to see our current deals.

Step 3: Buying The Investment Using Your IRA

Now that you found an investment property from GoRealEstateInvestor.com, the first thing you need to do is to get a Purchase and Sale Agreement with your IRA as the buyer.  The title of the property must reflect your IRA Custodian as the buyer for your benefit.  For example, the buyer could be “PENSCO Trust Co., Custodian FBO John Doe IRA”.  You can buy an interest in an investment property using your IRA as well.  For example your IRA could partner with a non-IRA as long as you state the percentage ownership your IRA is purchasing and keep the IRA’s portion of rental income and expenses within the IRA.  If you put up an earnest deposit out of your own pocket, make sure it is stated on the Purchase and Sale Agreement that escrow should refund your earnest money to you and fund the entire amount from the IRA upon closing.

In most cases there are about three to four pieces of paper that you will have to fill out when using your IRA to buy Arizona investment properties.  The process typically takes around 3-5 days and can be done through emails and faxes!  We have sold many properties to real estate investors using their IRA’s and many are very happy with the speed and ease of this method of investing.

THINGS TO REMEMBER

Once you purchase a property within your IRA it is important to run all property expenses through the account.  This includes property taxes, insurance, and repairs.  If you sell a property that was held in your IRA all proceeds need to stay in the IRA for future investments otherwise stiff tax penalties could be received.  You should also look into an IRA LLC structure otherwise known as a Checkbook LLC.  This is where your IRA invests in a Limited Liability Company that you manage yourself.  It cuts the processing time down and allows you to write a check for real estate…perfect for buying homes at auction where speed is everything!

ABOUT THE AUTHOR GOREALESTATEINVESTOR.COM

GoRealEstateInvestor.com is an Arizona property wholesaler that sells discounted real estate to both local and out-of-state investors.  We offer full-circle services from acquisition to property management and always adhere to the highest ethical business practices.  Our staff of highly trained investment specialist offer free consultations and return-on-investment workshops to help our investors maximize their profit potential.  With the largest selection of Arizona investment properties you can count on GoRealEstateInvestor.com for all your real estate investing needs.