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Buying Real Estate with IRA Accounts: Using IRA to Buy a House

27 January, 2018

Buying Real Estate with IRA Accounts: Using IRA to Buy a House

Many investors still (mistakenly) believe that their retirement funds must be invested in traditional options like stocks, bonds and mutual funds, but in reality, buying real estate with IRA accounts is actually perfectly legal. 

“Few investors realize that the IRS permits retirement accounts, such as an IRA or 401(k) plan to invest in real estate and other types of alternative investments”, wrote Forbes.

So, if you’ve ever thought of using IRA to buy a house, read on!

Self-Directed IRA Rules

IRS rules permit one to invest retirement funds in almost any type of investment, except for those involving a disqualified person, collectibles and life insurance. The most common investment vehicle for buying real estate with an IRA account is a Self-Directed IRA, which is easy to establish, can be done in just a few days and is relatively inexpensive. 

Self-Directed IRA Rules

Retirement Account Real Estate Investment Rules include:

  • Account holder cannot live in property purchased with retirement funds.
  • Immediate relatives of account holder cannot live in the property, either.
  • Account holder is not permitted to directly perform property maintenance.
  • You can’t enjoy “indirect benefits” from property owned in your IRA.
  • IRA real estate investments must be uniquely titled.
  • Expenses must be paid from the IRA.
  • Income from the property must return to the IRA.

The purpose of these Self-Directed IRA real estate rules is to encourage the use of retirement account funds to accumulate retirement savings and stop the account owners from taking advantage of the tax benefits in their personal accounts. 

Also Read:

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Advantages of Using IRA to Buy a House

Advantages of Using IRA to Buy a House

Tax deferred income, a hedge against inflation and protection from stock market volatility are just a few of the reasons to consider buying real estate with an IRA retirement account.

“One of the primary advantages of purchasing real estate with retirement funds is that all gains are tax-deferred until a distribution is made”, Forbes wrote. 

Here’s how it works: Imagine you buy an investment property for $100k using your retirement account and later sell the property for $300k. In this case, the $200k gain would be tax deferred, but if you purchased the same property and realized the same gains using personal (non-retirement) funds, the $200k would be subject to a significant tax hit.

Do you have questions about buying real estate with IRA accounts? Post them in the comments!

Want to know more? Download our FREE guide below and learn more about using your IRA to invest in real estate!

Want to Know How to Invest in Real Estate with your Self-Directed IRA?

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Topics: Real Estate IRA Alternative Investments Learn How

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