It’s true that two things are certain: Death and taxes. Since taxes are more immediate, you’re probably paying very close attention to your IRA (Individual Retirement Account), and wondering how you can make it work for you and provide you with a secure nest egg when the time comes.
As you might already know, an IRA is a savings account that comes with generous tax breaks for the account holder. The terms and conditions with regard to who can pay into one can be quite complex, so getting good advice is essential. Think of IRAs as a pot to keep your money in, rather than as an end in themselves. Your money can always work harder for you, and it’s sensible to diversify your savings as much as possible, with real estate figuring as prominently as stocks and shares.
Can You Buy Real Estate With IRA?
If you’ve ever thought about getting into real estate investing, you might have wondered if you can buy investment real estate with your IRA—after all real estate can be a more stable investment with greater returns than other types of retirement investments. The short answer to a fairly complicated question is is yes and no. You can’t, for example, use an IRA to buy a house you already live in or plan to live in or a house that you don’t intend to rent out on a permanent basis.
You can, however, use your IRA to to buy an investment real estate property if you plan to rent it out full-time. This great news because it means, that one of the most lucrative ways of building a property portfolio is open to you since your IRA is the perfect means to buy turnkey rental properties, which can allow for stable passive income (and less stress and hassle, too.)
Potential Pitfalls (and Benefits!) of Buying Real Estate with an IRA
Like any complex investment—and when it comes to purchasing property with your IRA, it can be complicated—and you should definitely seek out the advice of an accountant to be sure you have everything is in order. Especially since there can be big penalties for not adhering to the requirements.
Here’s a very brief over view of some of the things you’ll need to think about.
To buy property with an IRA, you will need to open a custodial account so that you can make purchases in the account’s name.
Another consideration is that you will need to be able to purchase the property outright, as traditional mortgages aren’t generally available for an Individual Retirement Account. Most financial advisors wouldn’t suggest that you put everything you have into one investment, so you’ll probably want to have enough left over after your purchase to still have a diverse and varied financial portfolio.
It may all seem very complex—and it is—but it can be done (and very beneficial!) in the right circumstances. As with all investments, doing plenty of research and heeding the advice of experts can head problems off before they even appear. Your initial outlay may be more than it might otherwise be if you were embarking on funding your investment real estate purchase a different way, but the potential rewards could be much greater, too, especially if it allows you to diversify your investment portfolio.
JWB has helped clients for over 10 years invest in turnkey rental properties in the Jacksonville, FL market. Click here to learn more about our properties, returns, and our process.