The IRA Real Estate Investing Guidelines are vital to understanding if you want to include property in your IRA. While the government does not prohibit the purchase of property with individual retirement accounts, there are regulations that must be followed and prohibited transactions that, if violated, can lead to the decimation of your IRA.
Although section 408 of the IRS code allows individuals to purchase specific types of property with funds from an IRA, selling or buying property from an IRA is a prohibited transaction. When looking to add real estate investments, it’s best to find a real estate IRA or a company that allows people to use their IRA funds for these non-traditional transactions. If you’re comfortable making all the decisions regarding your account and are looking to cut costs, a self-directed real estate IRA gives you full control over your retirement account investments.
The IRA real estate investment guidelines state that the individual cannot purchase the property themselves, they must instruct the custodian to purchase the property, and the custodian maintains the deed of trust for the IRA account. The custodian must also hire a third party to manage the property if any work needs to be done and all income and expenses are handled through the IRA account. If the individual mixes personal and IRA funds for the property, who does some of the work themselves for the property, then this is considered a prohibited transaction that can result in fines or IRA termination by the government.
Buying real estate is often an expensive affair, and there are usually not enough liquid assets in the IRA to purchase income-producing property. A person is prohibited from lending money to or buying money from an IRA, and IRA funds cannot be used as collateral for a loan. To leverage the assets of an IRA to purchase a property, a non-recourse loan is the investor’s only option. This loan is taken by the IRA through the custodian with the property as collateral and the lender cannot go after the individual if the loan defaults.
IRA real estate investment guidelines are complicated but can be followed. Finding a real estate IRA company will give you the experience and resources you need to make informed decisions when adding real estate to your investment portfolio.