Did you know you can use IRAs (your own or someone else’s) to invest in real estate? Here are some reasons to consider doing this:
By John “Jack” F. Kiley, CPA, CISP
Managing Partner / MidAtlantic IRA, LLC
- Real Estate is what you know best.
You have a special knowledge of real estate – take advantage of it. Every financial adviser at some point says that you should understand the risk associated with any investment you make. Do you really understand the risk in the stocks, the mutual funds and investment trust you have been offered in the past? Probably not – but you do understand the real estate that could be part of your Self-Directed IRA. That means you could leverage your real estate expertise in a way the average investor cannot.
- You can invest in any type of real estate you want
You may have been told that a publicly traded Real Estate Investment Trust (REIT) is the only option for investing in real estate through your IRA. This is not true. Non-publicly traded REITS, as well as single family homes, duplexes, apartments, commercial buildings and raw land, are just a few of the many forms of real estate you are able to invest in by using your IRA. If you want to invest in 125 Main Street, you can probably use your IRA to do that. This gives you the powerful advantage of being able to invest in a certain town (on a “macro” level) or even on a specific street (on a “micro” level).
- You are able to invest in almost any structure that holds real estate
Many real estate investors purchase real estate utilizing corporations, partnerships and LLCs. IRAs are able to use these structures as well. And, if you do not want to purchase the entire property, you may invest in a partial interest by using corporation, partnership or LLC entity types as an undivided interest.
- Your IRA can use leverage to purchase real estate
Your IRA is legally a trust, and as such, it has the ability to borrow money. Although this option is more complex and you should consult your advisers before considering this, it leaves open the possibility of using “other people’s money” to acquire property in your IRA.
- All real estate investment strategies may be used
Buying and holding, wholesaling, rehabbing and other strategies can be utilized within your IRA. It’s possible to acquire properties through tax lien sales or buying the note. Special rights associated with real estate, such as timber, minerals, gas etc., may also be bought, sold, leased etc. by using your IRA.
- You can use YOUR “real estate team”
Most real estate investors have spent years building their “real estate team.” These include brokers, appraisers, title companies etc., who handle your due diligence, acquisition and buy/sale of real estate. These are people that you not only trust, but give you the best value for your dollar. Generally, you will be able to use these same trusted advisers when investing in real estate through your Self-Directed IRA.