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How to Buy Real Estate with an IRA

Property Management and Tenant Placement

How to Buy Real Estate with an IRA


Are you thinking about buying multifamily real estate with your retirement account (IRA)? If so, you’ve come to the right place!

Even though you may have had an IRA for years, the reality is that you cannot purchase real estate in any form using your traditional individual retirement account, you have to have a “self-directed IRA”.

In this article, I will break down how to use your self-directed IRA to purchase multifamily real estate and provide you with tips that you need to know,

Getting Started with A Self-Directed IRA

Most people who have had an individual retirement account for years don’t think that they can’t use a traditional IRA to purchase real estate and are shocked that they need to set up a self-directed IRA.

The good news is that it’s easier than ever before to set up a self-directed IRA and there are a wide variety of options to choose from, including Roth IRA’s, depending upon the type of your current IRA, and also if you’re planning on rolling your assets over into the self-directed IRA.

Yes, there are a wide variety of self-directed IRAs for you to choose from, especially if you’re self-employed, because self-employed individuals may be eligible for setting up SIMPLE IRA, SEP-IRA, or possibly a self-directed 401K account.

Keep in mind that each of these self-directed IRAs may have higher annual contribution limits than what you may find with traditional IRAs so it’s best to think carefully about which option that you choose, if you qualify, then consider the contribution limits carefully before you get started.

The great thing about having a self-directed IRA is that is can be awesome for purchasing real estate of any type, especially multifamily properties, commercial properties, and even single-family rental properties.

Besides multifamily real estate, some of the other Investments that you could potentially hold in a self-directed IRA include tax lien certificates, precious metals, private equity Investments, cryptocurrencies, and so much more!

A word of warning though, if you’re an investor who also likes to purchase collectibles such as artwork, antiques, or coins as part of your investment portfolio, these types of Investments are not always allowed with self-directed IRAs. It’s best to consult with your tax professional before you decide to use your self-directed IRA to purchase collectibles, antiques, or other Investments.

What Are the Rules That You Will Need to Follow?

There’s no doubt that you can use a self-directed IRA to purchase real estate but, there are rules that you need to follow which will help you to avoid troubles with the IRS down the road.

Rule #1 – Use Your Oregon Real Estate IRA for Real Estate and Investment Purposes Only

The first rule that you absolutely must follow with your self-directed IRA is that you have to use it for investment purposes only and not for personal reasons.

Besides using your IRA for business and investment purposes only, it’s also important for you to know that all expenses related to your multifamily property must be paid through your retirement account and not by you or your spouse.

Rule #2 – Any Income That Your Multifamily Property Generates Must Be Paid to the IRA

The next rule that you need to follow when using a self-directed IRA to own multi-family properties is that any income the property generated must be paid to the individual retirement account and not to your accounts, your spouse, or someone else in your family.

Rule #3 – You Can’t Use Your IRA to Buy Property for Yourself

Last of all, but most important, another thing that you cannot do when you’re using a self-directed individual retirement account to purchase multi-family properties is to use that IRA to purchase the property from yourself or another member of your family.

Even though many investors have tried to use their IRAs over the years to their advantage, the reality is that this sneaky way to get cash out of their retirement accounts can ultimately get an investor in trouble so it’s best to make sure that you understand all of the rules related to your IRA before you plan on using it to purchase real estate.

Is It Possible to Get A Mortgage to Buy Property That’s Held in Your IRA?

After a few years of owning real estate in your IRA, you may have a goal to use a mortgage loan to buy a property from the IRA. The big question though is if this is even possible? The answer is, it depends.

Yes, you can “technically” use a mortgage loan to purchase real estate from your IRA but, since you are technically not the owner of that real estate, because the IRA is, you have to find a lender who is going to be willing to lend money to your retirement account.

The good news is that in 2021, there is a wide variety of mortgage lenders who specialize in loaning money to IRA’s but it’s going to take time to find the right lender.

It’s important to note that if you stop making your mortgage payments, the lender can go after any additional assets that you may own, aside from the multi-family property that’s currently being held in the investment venhicle itself, so it’s best to think about all of the potential risks involved with using your account to purchase multifamily real estate before you move forward.

Besides the potential risks involved, with using an individual retirement account to purchase multifamily real estate, you also need to be aware of some tax implications that you could face by using this method.

Although individual retirement accounts are traditionally tax-deferred, there also is a tax concept that’s known as “unrelated business taxable income ( UBTI)” this means that you might have to pay additional taxes on your investment income that the IRA makes if you choose it to purchase multifamily real estate or other Investments.

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At Rent Portland Homes – Professionals we specialize in full-service property management for single family and multifamily properties.

Our property management team can provide you with all of the services that you need from tenant selection, maintenance, customer service and more.

For a property management quote, contact us today by calling (503) 447-7735 or click here to connect with us online.