Real estate may be purchased and held in a self directed Real Estate IRA in a variety of ways:

• Direct ownership by the IRA,

• Tenants in common with other unrelated third parties, where each investor holds an undivided interest in the property, or

• By leveraging the investment with a nonrecourse loan.  You may wish to view our Professional Resource Directory to find a lender that will loan on a nonrecourse basis.

Types of Real Estate Property Your IRA Can Hold

A wide range of real estate can be held in a self directed IRA, as long as it is investment property and the transaction is properly handled. SDIRA Services has the knowledge, experience and expertise to assist with your self directed Real Estate IRA investment as well as custody the following real estate assets:

• Because IRA-owned property cannot be depreciated, purchasing raw land with an IRA rather than improved property may be something to consider.

• Your IRA could purchase raw land, subdivide and then sell.

• Your IRA could buy and flip properties (short term) avoiding capital gains tax.

• Your IRA could buy triple net lease properties (low maintenance, no depreciation) long term.

• Your IRA could buy real estate options and sell them – the benefits of leveraging, without the risk of Unrelated Business Taxable Income (UBTI).

• Buy land contracts and sell them to get the benefits of leveraging, without UBTI.

• Your IRA can purchase rental property and have the rental income flow back to the IRA on a tax-deferred basis (or tax-free if it’s a Roth IRA and the minimum holding period requirement is met).

Investing self directed IRA funds in real estate can be very tempting, but it’s important to understand how it works before you invest. We recommend that you consult with your tax, financial and legal advisors before deciding to invest in real estate using a self directed Real Estate IRA.

Investing IRA funds in real estate is not for every investor and there are important features and rules to understand before considering this type of investment. First, when considering real estate in an IRA, the property must be purchased and held for investment reasons only.  The IRA owner cannot receive any direct or indirect benefit from the investment, or else the transaction could be considered a prohibited transaction.  A prohibited transaction is one that takes place between the account owner and any individuals or entities that would be considered a disqualified person.

You can learn more about prohibited transactions by using the following resources:

• Transactions to Avoid in a Self Directed IRA
• Understanding Prohibited Transactions and How to Avoid Them
• IRS Publication 590
• Internal Revenue Code §4975

Investors are encouraged to consult with a tax and legal advisor(s) to ensure the transaction does not violate any of the prohibited transaction rules. Causing a prohibited transaction to occur could disqualify the tax-advantaged status of the IRA, resulting in taxes and potential penalties on the distribution. 

Other Important Things to Know:  

1.     The purchase offer should be made in the name of the custodian for the benefit of your IRA:  Self Directed IRA Services, Inc., Custodian FBO (Accountholder’s Name) IRA (Account #).

2.     The IRA account owner should review the purchase contract, initial each page and sign 'as approved' on the bottom of the first page.

3.     You should never use personal funds for the earnest deposit or any other expense.  The purchase, earnest deposit and any expenses should all be paid directly by your IRA account.

4.     Liability insurance is required and should be in the name of:  Self Directed IRA Services, Inc., Custodian FBO (Accountholder’s Name) IRA (Account #).

5.     All rental income should be paid to the IRA.

6.     All expenses or improvements should be paid by your IRA, and you may fax the invoice (with your signed approval and instruction to pay) to SDIRA Services.

7.     SDIRA Services requires that you have a real estate servicing agent to provide the duties outlined on our Real Estate Servicer Agreement.  An IRA owner may act as their own servicer, but may not collect a fee.

8.     For income-producing property, SDIRA Services requires the IRA owner to obtain an unrelated third party property manager.

9.     An appraisal or broker’s price opinion (BPO) which is dated within the previous 12 months is required before the initial purchase can be processed.  After the initial purchase, an appraisal or BPO is required every 3 years.

10.   Real Estate which is structured in the form of an equity arrangement, such as a Limited Partnership or Limited Liability Company, should use our Private Equity Investment Checklist.

11.   Real Estate which is structured in the form of a debt arrangement, such as a Trust Deed, Mortgage, Real Estate Contract or other Note, should use our Private Debt Investment Checklist.

12.   After the closing, SDIRA Services should hold the original recorded deed and any assignments, along with the original title policy.

It’s easy to invest in a Real Estate IRA with SDIRA Services. 

Just follow these easy steps:

  Download our Real Estate Investment Checklist and follow the instructions provided.

  Open your self directed IRA account.

  Fund your IRA with a rollover, transfer and/or contribution prior to making the offer to purchase.

  Find the property you want to purchase in your Real Estate IRA and provide the items outlined on our Real Estate Investment Checklist.