The Basics of Real Estate IRA Investing

December 2, 2022

There are many different ways to invest through an IRA. While most people invest through stocks, bonds, and mutual funds, self-directed IRAs open up a world of possibilities. If you’re looking to try something different with your retirement planning, a real estate IRA could be right for you. Like any other investment, real estate investing comes with a few rules. Below, we’ll cover some of the basics of real estate IRAs, including their benefits, how they work, and what to expect.

Why invest in real estate?

Real estate investments can be a great way to diversify your funds. Investors choose real estate because it feels much more tangible than other investments and has proven successful for generations. They can be a key vehicle to grow your IRA.

Typically, those who chose to invest in real estate already have a substantial IRA to use. This gives you more room to invest in excellent properties that will turn more profit. These investments can also have a quicker turnover than other types of retirement investments, depending on the market at the time.

How does it work?

Before you go any further into real estate investing, you need to make sure you have the right set up to do so. Some IRA professionals will not stray from traditional investments or have little experience outside of them. You need to make sure you are working with a self-directed custodian that is comfortable and knowledgeable in the field of real estate retirement investing.

If you need help finding an expert, you can visit our membership directory for a list of experienced self-directed IRA custodians to assist you and your future investments. The key is to find a qualified professional that will help you understand the process.

What are the rules?

The rules for investing through real estate IRAs are extremely crucial. If your investment is handled in the wrong way, it can result in IRA disqualification. This means all of your funds will be taxable. The essential rules are as follows:

  • No self-dealing (you cannot buy or sell to a related party)
  • No hands-on improvements
  • No personal benefits (you nor anyone you know can live in or benefit from the real estate)
  • All investments and profits must flow through the IRA
  • Profits from the sale must go back into the IRA or another investment through the IRA

The best way to maintain these rules and regulations is to trust your investment to a trained self-directed retirement custodian.

The first step to any investment is to do your research. You will feel more confident in your finances and future if you understand the whole process. You can also find experienced companies to speak with through our trusted membership directory. And don’t forget to use our Check Before You Invest checklist to protect yourself against fraud or risky investments.

Whether you choose to invest your self-directed IRA through real estate or any other outlet, RITA is here to help.