An Individual Retirement Account, or IRA, provides a way to save and invest money with the benefit that all funds saved are taxes-deferred. The money in a IRA can then be invested to allow that money to grow. This can include a range of options including traditional investment vehicles such as stocks, bonds, annuities, and certificates of deposit. IRA funds can also be used to invest in real estate. But taking the proper steps you can purchase property as an investment through your IRA.
Step 1
Locate an IRA custodian that specializes in real estate investments by searching online for the terms 'real estate IRA' or 'self-directed IRA' to locate potential candidates. Set up an IRA account with that company. Execute and sign a broker-to-broker agreement between an existing IRA and the new self-directed IRA, if necessary. Discuss the Federal laws concerning the use of the IRA funds for purchasing real estate with the IRA custodian. Understand that you cannot use IRA funds to purchase your primary residence or a vacation home.
Step 2
Select a property you wish to purchase. You can purchase raw land, residential properties, commercial buildings and other properties. Check with your IRA custodian to ensure that the proper you wish to purchase falls within IRS guidelines for acceptable purchases.
Step 3
Direct the IRA custodian to purchase the property. Ensure that the title reflects the name of the IRA custodian and that they made the purchase on your behalf. Be sure to account for any earnest money paid from non-IRA funds in the total amount due to allow the title company to reimburse those funds to you directly upon closing on the property.
Step 4
Ensure that there are liquid funds available within your account to cover taxes, insurance, maintenance, and other expenses that will be required to operate the property.
Step 5
Contract with a property management or servicing company to collect rent, maintain the property, and provide other services, in the event that the IRA custodian does not handle these needs. Ensure that all income from the investment properties, such as collecting rent, as well as all taxes on the property a will be paid by the IRA.
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