Invest In Real Estate, The Ultimate Hard Asset
Owning income producing property through an IRA is one of many methods investors are using to create retirement income. Real estate is appealing to investors, partly because it takes a minimum down payment to acquire a whole lot of property, and because an IRA can be used to make the purchase.
An IRA allows individuals to purchase real estate investments such as rental property or even properties intended for renovation and resale. Investments purchased through an IRA are allowed to grow tax-free or tax-deferred.
There are many different real estate investments and ways in which you may acquire them. IRA Services can assist in the process of carrying out all of your custodial needs. We believe you should have more choice, control and flexibility when it comes to your self-directed IRA.
Advantages of Investing In Real Estate Through Your Self-Directed IRA
Real estate purchased through an IRA is considered a secure asset. Therefore, the investment is extended protection from personal bankruptcy filings. All transactions are conducted separately from an individual’s personal finances.
There are several tax advantages associated with investing through an IRA. Capital gains and income made on property or land purchased through an IRA are afforded tax-deferred advantages. If the investment is made through a Roth IRA, the capital gains and income are exempt from tax.
Real estate investments provide an opportunity to diversify your holdings. IRAs allow investors to go beyond the usual stock, bond, and mutual funds. Holding property in an IRA account provides real benefits and investment options you just can’t get anywhere else.
IRA-owned real estate assets can be handed down to future generations. These type of investments can sometimes appreciate in value. The investment, along with its value and tax advantages are able to spill over into the next generation under beneficiary designations.
Build Opportunities with a Real Estate IRA
With IRA Services you have the ability to invest in almost any type of real estate using your individual retirement account.
Types of Real Estate
Individual Retirement accounts may be used to invest in several different types of real estate transactions.
The most common transactions for real estate options are:
Homes, apartments and condominiums
Office buildings, retail stores, malls, and other commercial properties
Timber, water, or mineral rights
New construction and development
Real Estate Investment Trusts (REITs)
Tax Liens, trusts, deeds, and mortgages
Resorts and hotels
Susan has decided to use her IRA to purchase commercial real estate in an up-and-coming neighborhood. Susan’s IRA will only cover half of the purchase price so she decides to take out a non-recourse loan to fund the balance.
In a non-recourse loan, Susan can use the property as collateral without putting herself or her IRA at risk.
She sends all the necessary paperwork for IRA Services Trust Company to make a 35% down payment. The bank Susan chooses finances the rest on the IRA’s behalf.
After speaking with his advisor, Joseph decides he is going to invest in real estate using his IRA. He calls IRA Services and explains that he is ready to rebalance his portfolio.
Joseph wants to invest in something that acts as a good fit for his financial future. He chooses to invest in property in Arizona because he eventually wants to retire there.
Joseph is granted the exclusive right to purchase some beautiful property in Arizona for a specific price and on a specific date. If he fails to buy the property on the agreed-upon date, the option expires. The seller would then be free to sell the property to another buyer. Joseph does not want to miss out on the opportunity to buy the property in Arizona, so he asks IRA Services to handle the filings. He knows they will get all the necessary papers correctly filed and that they are aware of the important deadlines.
Joseph gives IRA Services written instruction to wire earnest money as part of the purchase. IRA Services reviews the documents to make sure the IRA is listed as the buyer of the property, and that IRA guidelines are being followed. They sign the necessary documents on behalf of the IRA and wire the earnest money.
While closing documents are prepared, Joseph hires a property manager to oversee his new real-estate investment, collect rent, and pay bills. Joseph instructs IRA Services to execute an agreement between the management company and the IRA.
Acquiring Real Estate When Your IRA Falls Short
When an IRA will not cover the full purchase price of real estate, investors can turn to non-recourse loans to fund the balance.
A non-recourse loan is obtained through a bank by the IRA, and the IRA becomes responsible for loan repayment.
As an IRA owner, you will not make any of these payments personally; your IRA must meet the requirements and make all the payments. IRA Services will ensure transactions are placed according to IRS guidelines.
The typical loan requirements to obtain a non-recourse loan include:
The property must generate rental income. Lenders will often use this to determine whether there will be sufficient income to cover a loan and other expenses.
There must be a 60%-70% debt-to-equity ratio on the property. In some instances, an IRA is required to put 30%-40% down in order to meet this requirement.
What are the alternative assets IRA Services Trust Company Allows?
Your Retirement Account Your Way™
More Choices. More Control. More Flexibility.