Investing in Real Estate with an IRA

Real estate is known as a very stable investment. While the stock market may crash and rebuild, real estate holds value for years. Although real estate markets may ebb and flow, the value of property is much more stable than almost any other asset you can put money into. So, get your money’s worth, and learn how to make your IRA work for you below.

Open a Self-Directed IRA

Did you know? You can use your retirement funds to purchase a rental property or other real estate. You will need a non-traditional IRA to do so. You will need to open a self-directed IRA, which is much more flexible about where the money can be invested than a traditional IRA.

A self-directed IRA has the same tax benefits as a traditional IRA. However, you will need a special custodian to set up your self-directed IRA. Once active, money from that IRA can be allocated to purchase property. There are certain restrictions the IRS has set for the purchase and rental of real estate purchased with this kind of IRA, however. 

Because of the IRS-led restrictions, some investors instead use their self-directed IRA funds to invest in a real estate syndicate. Syndicates are groups of investors who pool their money together to purchase large properties. By investing with a syndicate, you take the personal responsibility factor out of it. You add capital to the property, and someone else cares for its maintenance and tenants. You simply enjoy the return. 

It is important to note that many syndicates will only allow investments from accredited investors. To be classified as an accredited investor, a person needs to earn an annual income of at least $200,000 for individuals or $300,000 for couples for the past two consecutive years. Or, if you have a total net worth of more than $1 million, you’d be classified as an accredited investor.

Invest in REITs

If buying a property or investing with a syndicate isn’t the right fit, you can still invest with your self-directed IRA in real estate by investing in a REIT. By buying shares of REITs in the stock market, you are investing your money into companies that own or finance real estate. Typically, REIT companies have large portfolios of many properties that pull in large profits, so you can be sure your money has good potential to grow. In addition, REIT ownership within an IRA allows dividends to stay in your retirement fund where they can grow value, tax-free or tax-deferred, depending on which IRA you have.

The Realty Group Team can guide you through this if you are looking to invest in real estate with your IRA – contact our Investment Property Specialist, Greg Bentz at 434.202.9041.

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