IRA FAQs

Learn more on IRA plan types, the rollover process, and real estate requirements.

IRA Fundamentals FAQ

IRA Transfer and Rollover FAQ

IRA Real Estate FAQ

 IRA for Real Estate FAQ

How do I purchase real estate with my self directed IRA?
The process of purchasing real estate with your self directed IRA is very similar to purchasing conventional investments with your IRA, with a few exceptions. Once an account has been established and properly funded client instructs custodian for their IRA, to purchase the specific investment property.
To make the investment, a Real Estate Direction of Investment form must be submitted. Information included on the Real Estate Direction of Investment form will include: location of the property your IRA is purchasing, the amount needed from your account, where the funds need to be sent, and what documents are required by the Custodian for your IRA. Once your Real Estate Direction of Investment has been received, Custodian will act on your instructions and remit funds to the title company/closing agent/attorney.

What are the differences between buying real estate for myself and purchasing a real estate investment for my IRA?
There are four main differences between purchasing real estate for yourself and for your IRA:

  1. Title: When purchasing an asset for your IRA, it is imperative that it be properly titled to your IRA. Specifically, it must read: Your Chosen Custodian FBO Your Name IRA. Custodians will not accept any investments which are not properly titled.

  2. Funding: When purchasing an investment (or any portion of an investment) for your IRA, funds must come directly from your IRA. Custodian will send the funds directly to the title company/closing agent/attorney, per your instructions.

  3. Expenses/Income: Any expenses associated with your IRA investment must originate in your IRA account and any income must be remitted to your IRA account.

  4. Signatures: Documents pertaining to your IRA investments must be signed by Custodian on behalf of your IRA.

Can I have funds remitted directly to a seller?
Yes, by completing a Real Estate Direction of Investment form, you will instruct Custodian where to remit funds. Typically, funding to purchase real estate is sent to a title company, attorney, or escrow agent. Funds can be remitted by check, cashier’s check, or wire.

Can I transfer/rollover funds from an existing IRA, 401(k), or 403(b) to a self directed, for the purpose of investing in real estate?
Yes, we believe that you’re the best steward for your retirement assets. You can choose to transfer/rollover all, or portions of, your existing retirement accounts to a self-directed Custodian, in order to self direct them into real estate investments in which you have confidence, knowledge and expertise.

I plan on purchasing a property with my IRA that will generate rental income. Does the rental income have to go back to my IRA?
Yes, all income generated by a property owned by your IRA must return to your IRA, in order to retain the tax-deferred or tax-free status of the investment.

How does the rental income actually get back into my account?
Rental payments are remitted to Custodian for the benefit of (FBO) your IRA. The checks or money orders are made payable to "Your Chosen Custodian FBO Your Name IRA #xxxxx. Once received, the checks or money orders are deposited into your account.
Please note: As the investment is owned by your IRA, all rental checks must be made out to the IRA with proper titling: “Your Chosen Custodian FBO Your Name IRA #xxxxx.

Can my IRA purchase real estate that I own presently?
No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property or interest in a property which is presently owned by a disqualified person. Disqualified persons would include yourself and family members of lineal descent..

Can my IRA purchase real estate that my corporation, partnership, or LLC owns?
No. See previous questions.

May I live in or work in a property that my IRA owns (e.g., personal residence, retirement home, office)?
No. This is considered a prohibited transaction (see IRC 4975).

Can my IRA invest in a newly-formed entity (e.g., limited partnership, limited liability company, c-corporation, land trust) that will invest in real estate?
Yes. Investments in newly-formed private entities are not prohibited under the IRC, with the exception of Subchapter S corporations.

Can my IRA purchase an interest in a Subchapter S Corporation?
No. IRAs are not qualified as investors in Subchapter S Corporations.

May I use funds from my IRA to renovate property in order to sell it at a higher price?
Yes. However, your IRA must pay all expenses associated with a property that it owns, including the renovation of the property. Further, all proceeds associated with the sale of your IRA’s investment in a renovated property must be remitted to Custodian for the benefit of your IRA.

What if I do not have sufficient funds in my IRA to purchase a property outright?
Your IRA may purchase a TIC interest with other investors. 

You may also be one of those other investors by paying cash for a TIC interest.  Thus, you are a co-owner with your IRA. 

Debt financing is another alternative.  The use of debt financing might incur the production of unrelated business income tax. If debt financing is used, it must be in the form of a non-recourse loan, meaning that, if your IRA fails to make payments, the only collateral the lending institution can come after is the property itself, and not the IRA. IRAs may purchase an undivided (and proportionate) interest in a property, which would eliminate the occurrence of UBTI.

How do I sell a property owned by my IRA?
When you are ready to sell a property that is owned by your IRA, you will need to request the original documents from Custodian. This is done by completing a Sale Direction of Investment form. Once the property has been sold, all funds from the sale must be remitted directly to Custodian for the benefit of your IRA. This ensures maintenance of the tax-free -deferred environment. These funds will need to be remitted with a payment coupon stating what asset the payoff is for.

When I sell a property owned by my IRA, may I keep a portion and send the remaining portion Custodian FBO my IRA?
No. All income generated from the sale of a property owned by your IRA must return directly to your IRA.


  

 
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