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Using your IRA to invest in Real Estate?? How?!

​Using a (Self-Directed) IRA to invest in Real Estate where your earnings grow TAX FREE!

There are currently over 9 TRILLION dollars in IRA accounts in the United States. Many out there may not be aware that you can use a self-directed IRA to fund real estate investments. This applies to many types of real estate assets such as single family homes, properties for "flipping", short term rental properties, commercial properties, or multi-family properties jointly owned with other investors. Keep in mind in cases the asset is owned by the IRA, NOT by the individual's name on the account.

Firstly, what is a self-directed IRA? Note that this advantage is specific to self-directed IRAs only and will not apply to your traditional employee 401k plans. This is a HUGE benefit for many reasons, but in particular any proceeds and capital gains will continue to grow completely tax free. A self-directed IRA (SDIRA) is an IRA that can invest into any investment (or asset) allowed by law. Real estate is the most common investment for self-directed IRAs but they can also be invested into start-ups, private equity funds, venture capital funds, precious metals, and even crypto-currency. For the purpose of this article, we'll focus on real estate. How does one go about using a SDIRA to fund an investment? We often receive questions about this process as it may appear daunting to the new (or even sophisticated) investor.

Let's dissect the steps do go about this in detail:

  • Choose a Self-Directed IRA custodian: There are many choices out there, but if you're planning on investing in real estate, it would be helpful to select a service that has expertise in this area. Especially in times of COVID-19 delays, you will want to consider a conservative lead time of at least 4-6 weeks of completing all these steps. Also be sure to check our email/voicemail for any pending actions on your behalf during this process. This is especially important if you already have an investment in mind, it's time to get the ball rolling! Most real estate funds will need to be cleared in time with the closing date of the asset, so coordinate this with your investment contact or sponsor. This part is as simple as going to their website and taking steps to initiate your account. Here are a few popular choices:

  1. Equity Trust - https://www.trustetc.com/ - I have personally used this company with success.

  2. uDirect IRA - https://udirectira.com/

  3. The Entrust Group - https://www.theentrustgroup.com/

  • Fund the account with monies of your choice. Commonly, many will choose to use a prior employers 401k (you may not be an active employee) or existing IRA with another brokerage.This will typically involve triggering a request from your current brokerage as well as notifying your new SD IRA custodian of incoming funds.

  • Once your account's funding has been cleared with your new SD IRA custodian, determine which investments you would like to make with your account. For each transaction or asset purchased, you will likely need to submit a transaction request electronically to proceed with the request.

  • Monitor your account for clearing of your new transaction and celebrate your investment!

Also here are a few (important) tips for investors:

  • Any real estate property you buy must be strictly for investment purposes; you and family members can't use it. The IRS imposes large fines (tax consequences) for those who violate this, it's not worth the risk.

  • You and your relatives can’t live in or run a business out of the property.

  • The title of the property (or your shares in the property) will be titled the name of the IRA with FBO "Your name here", not in your individual name.

We hope this short guide has been helpful and you've enjoyed the tips! We look forward to working with you with your real estate investments, we are here to help! We help busy professionals invest in real estate! Contact us today to get started.

*Note - I am NOT an attorney or tax professional. The information noted above is for entertainment only. Prior to any transactions, please consult legal and professional tax guidance. To your success, Andrew Schutsky Founder and CEO Redline Equity, LLC

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