Why IRA Investing in Real Estate is a Sound Idea

by Camille Kent

IRA investing in real estate is becoming an increasingly popular choice. If you’ve never heard of the option, it’s because most account custodians don’t offer it.

In order to begin, you need a self-directed account. But, even some companies that have self-directed accounts don’t offer the real estate option. Those that are currently advertising “free and easy online set up� are stock market brokers.

So, just as you carefully choose what investments to make, you have to carefully choose your custodian. The fees they charge vary greatly, as do the services they offer.

The success stories about IRA investing in real estate are amazing. The most successful people are those who are experienced at making real estate investments with their personal funds.

Rehabbers, for example, are people who buy houses that need “some work�. They usually get a very good price and with minimal work are able to resell them for a profit.

But, if you have no experience, you can learn. There are seminars, books and investment clubs. There are groups of experienced investors that basically teach you all about IRA investing in real estate, in a “step-by-step� manner.

They have a lot of good ideas that are particularly relevant for today’s market. The economic problems in this country have affected many people’s credit ratings. Due to all of the foreclosures, most banks no longer make “high-risk� loans.

With the money in your retirement account, you could offer to provide financing at a much higher interest rate than a traditional bank loan. This is usually accomplished with a simple lease-option agreement.

You buy the property. The prospective buyer agrees to lease it for a period of time and has an “option to buy� at the end of the lease. In a year’s time, they should be able to improve their credit rating enough to qualify for traditional financing.

You sell the house for more than you paid for it. The rental income and the profits go back into the account. Any cost related to the transaction comes out of it. That’s just one example of how IRA investing in real estate can work.

Along with learning about the buying, selling and leasing, you should also learns some rules related to prohibited transactions. I’ll give you some examples. You cannot sell the house you are currently living in to your retirement account. It may seem funny, but a lot of people ask about that.

You can’t lease office space in a building owned by the account. You can’t take a vacation in an investment property owned by the account. Your kids can’t rent a house that is owned by your retirement account and neither can your parents.

All of the relevant rules have to do with self-dealing and indirect benefits. You can learn more about them through the better companies that offer self-directed accounts or by reading the relevant IRS publications.

IRA investing in real estate has helped investors grow from $20,000 to over a million in a relatively short period of time. If you make the right choices, you may be the latest success story.

About the Author

Camille Kent is a money management expert who specializes in IRA's.