This country is based in large part upon the ability of an individual to take advantage of real estate opportunities. Even though real estate investing has been somewhat flat over the last couple of years of recession, if we look back over history we can see that it is normally a great way for individual investors to build a future for themselves and to take care of their retirement plans. Many people believe that individual retirement accounts (IRAs) are reserved for more traditional investment opportunities, like certificates of deposit or other mundane instruments. What they do not realize is that it’s possible to invest in real estate using IRA funds through a real estate IRA.
When you use a real estate IRA, you can take advantage of some real benefits as you invest in real estate. For example, you can opt to defer taxes or take profits tax-free, thus saving you money that you would otherwise have to pay as income or capital gains tax and this can add up to a lot, even as much as 50% in certain circumstances.
By utilizing a real estate IRA, you gain true control over estate planning and can harness the power of compound interest, which is often seen as the “holy grail” of investment activity.
There are certain restrictions and rules associated with real estate IRAs, as you would expect. In general, you may not live in or work on the property that your self-directed real estate IRA owns, and may not purchase a property or interest in a property that is already owned by someone classified as a “disqualified” person. Disqualified people are those members of your immediate family, those of lineal descent and yourself, of course.
A new real estate IRA can be funded by rolling over funds from an existing 401(k), 403(b), other IRA or qualified retirement source. If you do not want to deal with the hassle of going through a custodian every time you need approval for something, self-direct and self-manage your situation and dealings with real estate investments by setting up a limited liability company. If you are considering rental properties, be sure that your rental income in these cases is placed back into the IRA and not elsewhere.
In fact, all your transactions and dealings associated with your real estate plans should flow into and out of the self-directed real estate IRA. Many people choose to buy and renovate the property to be subsequently sold and here they must be careful that all expenses are paid for by the real estate IRA, and that the funds realized when the property is sold, also go back into the IRA. In short, the real estate IRA must be the entity profiting from your transactions and it’s not okay, indeed illegal to keep the profits associated with these deals. Any transactions that could be classified as “self-dealing” must be avoided at all costs. That means that transactions between the buyer and the seller should come together naturally.
As the real estate market improves, and opportunities once again arise, a self-directed real estate IRA will allow you to take advantage of this turn. Anyone who has experience investing in real estate should be willing to consider a real estate IRA, as you will be able to make considerable differences to your IRA by utilizing your knowledge and ability.
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