How to Invest in Real Estate with Your Self-Directed IRA

What is a self-directed IRA?

Unlike a regular IRA that you open with a brokerage firm, a self-directed IRA allows you to take control of your own investment. And it’s not limited to just stocks, bonds, and mutual funds.

What can you invest in with a self-directed IRA?

With a self-directed IRA, you can invest in real estate, private equity, notes or mortgage notes, currencies, offshore funds, commodities, such as oil or petroleum, and precious metals, such as gold, silver, etc.

How to use a self-directed ROTH IRA in your real estate investment?

If you contribute money to your Roth IRA, that money grows tax-free, since your contributions are after-tax money. With what you have in a self-directed Roth IRA, you can buy rental properties. The rental income generated is tax free. When you sell your rental property for a profit, you are tax free. If you’ve ever ended up in a legal dispute, your real estate in your Self-Directed IRA is protected, because it’s not your own. Your IRA owns the property.

Isn’t that a great retirement plan and asset protection strategy?

How do you buy real estate with a self-directed Roth IRA?

First, you must have a self-directed Roth IRA set up. You can buy real estate in several ways. If you have enough money in your IRA, you can buy everything with cash. Another option is to buy with a non-recourse loan, which requires at least 50% of the purchase price as a down payment. One thing to remember is that the non-recourse loan has higher interest rates, which can reduce your earnings or cash flow.

So my suggestion is, if your fund in your IRA is not enough to buy real property with cash, then consider other investment options to build up your cash first.

You can build your cash by lending money through LendingClub.com or Prosper.com. Both LendingClub and Prosper.com allow you to open a self-directed IRA to fund your lending business.

Or you can invest in other types of investment offerings through your IRA company.

Either way, a self-directed one is a great way to diversify your retirement investing and gives you more control. Some self-directed IRA companies even give you “checkbook control,” which means you have the ability to write checks when you need the money, instead of applying to the company and waiting for the checks.