A provision in IRA law allows investors to use their individual retirement accounts to invest in real estate. The options for real estate investment can range from house plots or wild acreage to large apartment complexes and condominiums. These are among the largest investments you can make with your IRA, and they're usually utilized as part of an aggressive investment strategy. But investing in real estate isn't quite the same as making other investments with your IRA. There are different rules that apply to this type of fund, and it can limit where and how you manage your IRA.
Step 1
Make sure your current IRA allows for real estate investments, or open an IRA that does. The IRAs that most commonly allow for real estate investments are often called self-directed IRAs. Various internet IRA managers, include Pensco Trust and Entrust, offer self-directed IRAs specializing in real estate investment.
Step 2
Find a type of property that you want to invest your money in, whether it's a timeshare, undeveloped land or other property. Be aware that you can't invest in real estate that you plan to reside in or use for your own personal benefit other than financial. When considering how you will invest your money, try to cater to your skills and assets, if applicable. For example, a home remodeling expert could benefit from fixing up rundown homes, while someone working in tourism would have a good sense of how to manage a timeshare. You might also purchase real estate with the expectation that land prices will significantly appreciate in the near future. Once you have determined the kind of property you want, scour classified ads and real estate listings until you find a suitable property.
Step 3
Authorize your IRA manager to pay for the real estate using IRA funds. You will likely have to fill out an authorization form to protect your funds from being illegally withdrawn or transferred. The ownership of the real estate investment will then be transferred into your IRA rather than to you. This distinction is key, because when you sell the real estate, the money earned will go back into the IRA as earnings. You can withdraw these funds before the account matures when you reach age 59 1/2, but you will be assessed a 10 percent early withdrawal penalty fee in doing so.
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