Self Directed IRA Real Estate Investment
Many people are choosing the Self Directed IRA structure for gaining complete control over their investments. This is called, “checkbook control.” The goal is to make the IRA investments yield a good return as well as is tax-free. The structure for this type of IRA has been in effect for approximately 35 years.
As a long-term strategy, a Self Directed IRA real estate investment is an excellent idea.
This is true in spite of the fact that real estate values took a recent plunge. Historically, real estate has always had the potential for appreciation and income alike. With the ongoing market correction and the housing bubble of the recent past, a lot of areas of the U.S. offer buying opportunities that are unprecedented.
These days, residential real estate offers a great opportunity to do what investors are intended to do, which is the famous Wall Street adage, “buy low – sell high.” It is an excellent alternative to mutual funds and stocks. As investors consider the poor stock market performance in recent history, many of those who are saving for retirement are uncomfortable with their money tied up in stocks. Diversification is the way to go, so putting part of that money into a Self Directed IRA real estate investment is a good idea.
Banks, brokerage firms and insurance companies are able to assist investors who would like to open a Self Directed IRA. However, in these cases, the products are available are only the ones that allow them to make a profit, the ones they sell and service.
In order to purchase real estate with an IRA, the investor will be required to seek out an administrator who specializes in this type of transaction and who works independently of the aforementioned financial institutions. That person will need to serve as a custodian or trustee for the entity.
There are a number of established, well-known companies that deal in expediting these types of IRAs, and the wise investor will choose one that can demonstrate experience in this area. It is also important that the investor go into the deal with a full understanding of all the fees that are involved. A lot of companies do not perform this particular kind of service because of all of the complexities that are involved.
Obviously, the investor, in this case, is not permitted to use his or her IRA to buy his or her own residence, or any property that is owned by the investor or the family of the investor. There is a plethora of IRS regulations, restrictions and rules that pertain to these transactions. It is not only advisable; it is a true necessity to hire an adviser who is well versed with these types of IRA’s and the complexities of the deal when investing in real estate.
Even the slightest mistake can result in one of the rules being broken which can, in turn, invalidate the deal or cause the investor to have to pay full taxes on the IRA, so caution should be carefully exercised.
By: Claire Geonzon
Article Source: http://EzineArticles.com/5669223
One Response to “Self Directed IRA Real Estate Investment”
Dylan on August 10, 2011
Chris, I love that you emphasize the importance of being careful. Great real estate investors take pride in patience and caution because they want to be able to continue investing in real estate and when you screw up JUST ONCE on a 6 or 7 figure deal, you may be out of the game completely. So, if they were already property investors and now want to do more of it with their IRA monies, they will happily consult with a professional custodian so they don’t get burned. Those who have never before invested in property and now want some IRA real estate might find all of the regulations tedious, but I hope they heed your counsel and do it by the book.