Real Estate Investing with a Self-Directed IRA Custodian

Once an investor considers holding real estate in his or her IRA, it is important to take the first step and discover whether or not the current IRA custodian will even allow real estate to be held as an investment. Often, investors must move to a self-directed IRA custodian because their current provider either will not work with real estate or has little experience with holding real estate in an IRA. The name self-directed IRA can be a little confusing because many traditional brokerage custodians offer a “self directed IRA” for investing. The trick to comparing providers is finding out if their plans are only eligible for investments into securities like stocks, bonds, and mutual funds. The key is to find an IRA custodian that will handle real estate and other alternative investments. New Direction IRA provides real estate investors with plan options that make real estate ira investing easier than most. 

It is incredibly important for any self-directed IRA real estate investor to understand that choosing an experienced IRA custodian, large or small, can have a major impact on investment outcomes. Some qualities to look for in a capable self-directed IRA custodian:

• Size does not always matter. When it comes to self-directed IRA custodians, working with a large investment company does not mean that company has any experience managing self-directed IRA real estate assets. Look for a company that specializes in what you’re looking to accomplish.
• They have a firm understanding of IRS rules and are willing to educate you. As an example, a capable self-directed IRA custodian should be willing and able to explain IRS guidelines and help you learn about the processes, timelines, and tax implications of making real estate investments in a variety of structures. 
• Client Service is more than just a sales hook. Real estate investing with a self-directed IRA custodian is generally a do-it-yourself approach, requiring that you make decisions and execute actions. Finding a self directed ira custodian that offers great client service can make a world of difference because your investment instructions to the custodian may be processed slowly or not at all if client service isn’t up to par. Find out if you receive a dedicated representative when opening your self-directed ira for real estate investing. 
• Technology is important but not common. The self-directed IRA industry has historically been behind the times from a technology perspective and many still use paper forms to complete administrative actions such as paying real estate related expenses. Finding an IRA custodian that offers competent technology is an important consideration. Do they offer online form processing, free online bill pay, or real time communications for pending transactions? The paperwork process involved in real estate investing is intensive and it’s important that technology be leveraged to make sure all parties are constantly on the same page. 
• Will they save you from yourself? Self-directed IRA real estate investing comes with an entire playbook of rules. Sometimes investors make decisions that unwittingly go against these rules and are hit with penalties if audited by the IRS. Choosing a self-directed IRA custodian that will recognize prohibited transactions before they happen is incredibly beneficial.

At New Direction IRA, we encourage anyone considering a real estate investment within a self-directed IRA to reach out and discuss any questions with our knowledgeable staff. We’re happy to take the time if you call us at 877-742-1270.

Using a Real Estate Self Directed IRA to Make Real Estate Income

Creating real estate income is something many investors have come to view as a basic portfolio ingredient. Whether you are in the accumulation phase or retirement phase of your life, betting on the paltry bond market for income has become frustrating at best. Many investors do not want to expose their portfolios to the risk of a volatile stock market either, though. Thus, many turn to real estate as a source of retirement income and historical capital appreciation. What many investors do not understand is that by holding real estate in a self-directed IRA, investment returns can be sheltered under the tax-advantaged umbrella associated with retirement plans. A self directed IRA removes one major real estate profit loss – taxes on capital gains. 

However it also shelters rental income by allowing you to distribute funds on a more precise basis from year to year. Until the age of 70.5, you determine when and how much is distributed from your IRA. Here are a few questions to consider before purchasing rental property outright:

·         Am I able to manage the property myself and be “landlord”? It’s perfectly acceptable for an IRA holder to manage their own rental property however there are certain limitations that apply. You may act as “landlord” but only from a decision making capacity. Any repairs or improvements made to the property must be contracted to non-disqualified parties and paid for by the IRA in proportion to ownership. 

·         Does my IRA have a large pool of available liquidity? Many investors gravitate toward their IRAs as a way to tap a large amount of cash, which lends itself easily to cash purchases of real estate.  If your IRA is highly illiquid, or if the liquid portion isn’t sufficient to purchase property outright, you may need to consider other strategies such as financing through a non-recourse loan or partnering your IRA funds with another entity. 

·         Is my plan to rent or lease my real estate to the general public? If you intend to live in a rental property and directly benefit from the space or lease out your real estate to a close relative, the transaction is considered prohibited and cannot be executed in an IRA. Any real estate income received under the qualified umbrella of an IRA must be from a disinterested third party. 

Holding real estate in a self-directed IRA gives investors the ability to own all types of real estate. If all goes as planned, your ability to generate regular, long-term real estate income during retirement will be greatly enhanced by the substantial unrealized gains achieved through years of tax-deferred growth. 

Not all IRA providers are created equal and the vast majority have no experience whatsoever with self-directed IRA real estate transactions. New Direction IRA encourages any investor considering a self-directed IRA to increase real estate income during retirement to weigh all options carefully. Our team of IRA specialists are here to help and answer any questions you have.