Smart Strategies for Investing in Real Estate Using Your Self-Directed IRA

A Self-Directed IRA requires a custodian to handle record-keeping and comply with IRS reporting standards. When managing a self-directed account, you need to assess and report its value annually. Popular custodians include Accuplan, American Estate & Trust, and Central Bank.

Here are five key points to consider when investing in property through a self-directed IRA:

• Patience is Essential.
  Opening a traditional brokerage account can take weeks, and finding a custodian willing to hold real estate within an IRA is crucial.

The initial property investment often relies on IRA funds, which may require rollovers.

• Retirement-Only Access.
  IRA investments are generally inaccessible until retirement. These funds can't be used to cover mortgages or to fund properties purchased within the IRA. Additionally, you might forfeit potential tax benefits like depreciation deductions.

• Restrictions on Related Parties.
  Family members, spouses, or businesses in which you hold 50% interest cannot be involved in IRA real estate deals. While joint ownership like tenants in common is possible, the IRA remains an individual account, avoiding conflicts of interest.

Restricted Transactions: Self-dealing or unauthorized transactions are forbidden. Using IRA assets as collateral or engaging in transactions benefiting personal interests is prohibited.

• Active Management and Costs.
  You’re responsible for property expenses such as taxes, maintenance, insurance, and HOA fees—these are paid directly from the IRA. Finding tenants or contractors requires time and effort.
• Steps to Use a Self-Directed IRA for Real Estate: First, establish an IRA with a certified provider specializing in self-directed accounts. Given the complexity of IRS rules, working with a knowledgeable custodian is advisable. Costs vary among providers, so research all fees thoroughly. Ensure your IRA has enough funds to cover ongoing costs without additional deposits annually.