ICYMI: How to Invest in Real Estate With Your Self-Directed IRA

August 1, 2016 Chelsea Strong

Palpitations plague your pulse; your hands are cold and clammy. No, the new intern at your hair salon didn’t just accidentally slice off your bangs exactly one week before your dream wedding in Italy—but the anxiety levels are close.

You are about to become a real estate investor, which for many people, seems like a far-fetched dream, one that is out of reach, by all accounts. Hey, it’s big, and that makes it scary. Most of all, however, would-be land investors grapple with a common mental block: they think they can’t afford it. What they don’t realize is that the opportunity may already be in their hands.

If you have an IRA, you don’t need cash to invest in real estate.

That’s right. Many investors are buying land using their under-performing IRA accounts. It isn’t quite as simple as going through a big company like Fidelity or Morgan Stanley—but it’s close. Since you will own the dirt, in most cases, you’ll need to open a self-directed IRA in order to invest in alternative options. And, to do that, you’ll need a self-directed IRA custodian who can hold the new land as an asset in your account. The process is simple: identify the custodian you would like to use, open a new account, and transfer funds into it. As long as you follow the guidelines, there are no tax consequences or penalties involved in making the switch.

By contrast, there are several seductive benefits to becoming a real estate investor with your self-directed IRA.

A penny saved: When you invest in land with a self-directed IRA, there is zero cash out of your pocket. None! You can invest without spending a single extra dime.

The grass is greener: Odds are you are probably not getting the investment returns that you were used to getting from your traditional IRA back in the early 2000s. You might be looking for alternative ways to invest right about now, and this is a great way to do it.

Tax free (or close): Depending on the type of IRA you have, you can defer or eliminate taxes on the growth of your land investment. Growth in a Roth IRA, for example, will be tax free if you follow the IRS guidelines. Foolproof? Perhaps. Still, you should always consult with your tax advisor or self-directed IRA associate to see if using your IRA account to invest in land is the best option for you. And remember, it rarely hurts to diversify. Many land investors own properties in both cash and in their IRAs, which gives them access to their profits at different times, based on their age and specific needs. The options are there—it’s just a matter of exploring them.


This entry was originally published on November 16, 2015.


Girls Guide to Real Estate
This guest post was contributed by Girls Guide to Real Estate & edited for clarity


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