self directed ira for real estate

Investing In Real Estate With Your IRA

Recently all over Wall Street Journal, New York Times, and countless other publications there have been stories about big Wall Street companies jumping in and buying real estate rather than stocks, because they know they can get a better return. #ROI

So, why are most Americans still trusting their own retirements… IRAs… 401ks… with the stock market?

The answer is, they don’t know any better.

We’re gearing up to explore the powerhouse tools of wealth creation – SDIRA, 401K, stocks, and all that good stuff. But before we get feel excited, let me lay it out straight – I’m not your financial advisor, and this guide isn’t your ticket to financial nirvana. It’s a knowledge boost, not a replacement for your financial, tax, or legal team. You got to have your own team of pros before you make any moves in this money game.

Now, let’s get real. SDIRA is your power move – the self-directed individual retirement account. It’s your chance to take control, call the shots, and build that empire of wealth. It’s like having your own financial fortress.

On the flip side, you got the 401K – your retirement wingman. Your job might throw this at you, and if it does, it’s your backstage pass to stacking up that retirement dough. But hey, it’s not a free ride; there are rules to the game.

And then there’s stocks, the rock ‘n’ roll of investments. Buying into companies, riding those market highs – it’s like playing the financial guitar. But here’s the deal, it’s not for the weak-hearted. It’s a fierce journey, and you better have your game face on.

So, there you have it – a glimpse into the wealth-building universe. But remember, before you start making it rain in the financial arena, huddle up with your advisors, strategize, and execute like a boss. Let’s make those power moves, and let the wealth-building games begin!

The Self-Directed IRA for Real Estate

There’s something called a Self-Directed IRA.  

SDIRA – the financial Swiss army knife that’s shaking up the retirement game. Now, you might be wondering, “How’s this different from the traditional Roth IRA or the 401K?” Well, buckle up, because it’s a game-changer.

Unlike the traditional retirement accounts that limit you to a menu of pre-approved investments, SDIRA lets you take the wheel. Think real estate, private businesses, precious metals – you name it. SDIRA unleashes the power of diversity, giving you a broader playground for building wealth. It’s like having a customized investment menu, and you’re the chef crafting your financial feast.

Now, what sets it apart from the traditional players like Roth IRA and 401K? While those stick to the usual suspects – stocks, bonds, and mutual funds – SDIRA opens the door to alternative investments. It’s the rebel in the retirement world, breaking free from the traditional mold.

So, why go the SDIRA route? The perks are game-changing. First off, control – you call the shots on your investments. Second, diversity – you can spread your funds across various assets. Third, potential for higher returns – with a broader range of investments, there’s more room for growth. It’s like upgrading from a tricycle to a turbocharged motorcycle in the financial world.

But, here’s the disclaimer: SDIRA isn’t a stroll in the park. “With great power comes great responsibility”. You need to do your due diligence, understand the rules, and maybe consult your financial sidekicks.

In a nutshell, SDIRA is your golden ticket to a more personalized, diverse, and potentially lucrative retirement journey. It’s not for the faint of heart, but for those willing to break free from the traditional shackles, it’s a financial adventure waiting to unfold.

You can invest in…

  • Real estate (commercial, income-generating rental property, rehabs, etc.)
  • Promissory Notes secured by mortgages (i.e. – private lending)
  • Tax lien certificates
  • Limited partnerships
  • LLC’s
  • Sub-C corporations
  • Real estate options
  • Some types of precious metals
  • … and the normal investments like stocks that your normal IRA can invest in

Basically, this opens it up so you can buy investment real estate with your IRA or be a private lender in real estate.

Are There Restrictions?

Yes, there definitely are.  

First off, the IRS sets the stage. You can’t use your SDIRA to invest in life insurance or collectibles like art or stamps. These are a no-go zone. It’s all about steering clear of personal enjoyment and sticking to investments that contribute to your retirement wealth.

Now, let’s talk about “disqualified persons” – essentially, people you have a close relationship with. You can’t do business deals that benefit you, your family, or any other disqualified persons using your SDIRA funds. It’s about keeping things arms-length, no favoritism allowed.

And then there’s the prohibited transaction rule. This one’s a bit tricky – basically, you can’t use your SDIRA to transact with yourself, your family, or any disqualified persons. It’s a way to ensure fairness and prevent any sneaky business.

Now, while SDIRA gives you the keys to a diverse investment kingdom, there’s a catch – you can’t use the assets for personal benefit until you hit the age of distribution, typically around 59 and a half. So, no vacation home lounging or cruising in your SDIRA-bought classic car until you hit that milestone.

It’s crucial to know these ropes because, let’s be real, the IRS doesn’t mess around. Violating these rules can result in penalties, taxes, and a real headache. So, while SDIRA is a fantastic tool, it’s not a “do whatever you want” card. It’s more like a “do awesome things for your retirement, but stick to the rules” card.

Self-Directed IRA Custodians

The US Government created the SD-IRA loophole to help investors take more control over their investments while at the same time still getting the tax benefits. But, at the same time, they don’t want people setting up these SD-IRAs and just doing whatever they want.

So, there is a barrier that they have to have in place – and that’s the custodian.

The custodian is usually the Self-Directed IRA company who you have your IRA with. They act as the “go-between” when you’re going to make an investment.  Many custodians have guidelines on what you can invest in, how long it will take for you to actually make your money work for you once they approve the investment, etc. Some custodians are more passive… and let you actually have a checkbook where you can write checks from your SD-IRA to make investments.

Some have more expensive fees than others, and some give more flexibility than others.

You should do your homework and find the custodian that’s right fit for you.

What To Ask A Self-Directed IRA Company Before You Work With Them

Before you sign on with an SD-IRA company, ask them a few key questions.

  1. What are your fees?  – Fees can vary wildly. Some charge an annual fee based on the value of the account, some charge an annual fee, some charge large setup fees, etc. Find out what works for you. But the idea is that by being able to invest in real estate with your IRA.
  2. What’s the process for approving an investment? – Some companies can take up to 30 days+ to fund an investment after you send it in for approval. Some SD-IRAs give you what’s called “true checkbook control”, where you actually get a checkbook where you can write checks from your IRA account, which gives you immediate access to the funds (i.e. – to close a deal quickly). Checkbook control usually is a tad more expensive to set up than an IRA account that requires all investments to go through the sometimes-lengthy custodian approval process, but again – find out what’s best for you.
  3. Are there any restrictions on what I can invest in? I want to invest in real estate and make private loans. – Some SD-IRAs with larger more traditional companies like Schwab and Smith Barney put restrictions on what your account can invest in.  Some don’t allow real estate, while others do.  Just ask.
  4. Is my retirement account eligible to “roll over” into an SD-IRA? – Not all retirement accounts can be rolled over into a self-directed IRA.  Most IRAs can be… and even some 401(k)s can be. Just ask your financial advisor and ask the representative at the SD-IRA company you’re working with.
  5. How long will it take for my account to be up and running and have funds available for investment? – Some people wait way too long to get this process rolling. If you know you want to use your IRA to invest in real estate, get the ball rolling on getting it rolled over into an SD-IRA account ASAP.  Some companies may take weeks or even over a month to have your account setup completely and ready to invest.  So, don’t wait until you’ve found a great real estate deal to get started. Get started today, so your funds are ready to invest when you need them.

Getting Off The Sidelines And Getting Your Money Working For You

If you feel a self-directed IRA may be a great way for you to invest a portion of your retirement in things you know (rather than the unpredictable stock market), then dive in, and take some time to educate yourself on the pros and cons of an SD-IRA.

If you have any questions on how you can work with us as an investor, just connect w/ us through our contact form or call us anytime at 919-920-7081.  We offer discount investment properties in Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston and surrounding areas to investors like you who often buy them and keep them as rentals.  Also, for those qualified investors who want to explore private lending, contact us and we’ll talk about how we work with private lenders as well.

Happy investing!  

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