Use Your IRA to Invest in Real Estate

Physician's Money DigestApril 2006
Volume 13
Issue 4

Many investors today wish there were investment choices beyond stocks and bonds for retirement planning. They would also prefer more control over their retirement account investments. One type of nontraditional investing combines using your IRA to invest in real estate.

For individuals looking for diversification or without liquidity to invest, this option offers the ability to capitalize on the growing real estate market, which is historically less risky than the stock market, and gain a number of tax benefits at the same time. Physician- investors who are familiar with real estate in a particular region can capitalize on their knowledge to better select an investment for retirement.

Uncomplicated Investing

Purchasing real estate with an IRA can be considerably more user friendly than investing in stocks and bonds. Investors need not use all of the money in their account for the purchase price. Instead, use an IRA for a small down payment on the property and take out a loan for the balance from a purchasing entity. The partnership agreement in the purchasing entity also details who is responsible for events such as taxes and maintenance. It is best to work with a firm that has attorneys on staff who can help you to set up the loan properly.

There are numerous factors to consider when purchasing real estate with an IRA, but all can be navigated successfully by choosing a qualified self-directed IRA advisor that knows how to best manage your assets. A good self-directed IRA advisor will first obtain an understanding of your objectives, inform you of options, and provide support and education. They will also regularly monitor transactions to make sure you are not overstepping important legal guidelines. The following restrictions apply:

  • Real estate purchased with your IRA cannot be used for your own personal use, such as a vacation home or to run a business.
  • You or your lineal descendants (ie, children, parents) cannot live in or rent the investment property as long as your IRA owns a portion of it.
  • If you do not use 100% IRA capital from a single IRA or a combination of IRA holders and use a nonrecourse loan to finance the property, you can face the Unrelated Debt Financing tax.

Complete Asset Control

Physician-investors should consider an IRA limited liability company (LLC) for complete control over the investment, including checkbook control. Writing one's own checks for their investment can be granted through an IRA LLC, which provides the freedom to immediately pay the purchase price of tax liens at auction or handle renovation issues for a rental without delays.

Since an investor does not have to rely on a custodial firm to assist with transactions, an IRA LLC means lower fees. It also ensures IRA assets, which are vulnerable in some states. In the case of a judgment, the judge can consider how much is needed by the IRA holder to retire. Investors should look for an advisor that is knowledgeable in this process.

You may wonder why you have not been offered this investing option with your current advisory firm. There are very few financial firms that possess the expertise required to set up and manage nontraditional assets and can handle the necessary documentation. For these reasons it is important to find a professional familiar with the process of investing in alternative assets.

Daniel Cordoba is a principal with Asset Exchange Strategies LLC, which offers complete

support and advice for nontraditional investments such as real estate, horses,

natural gas technologies, bridge loans, currency exchange, marinas, ATMs, golf courses, and motels.

For more information, visit

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