Buying Real Estate in IRA

Buying real estate in IRA can be as simple or complex as you want it to be.

• Some investors keep things simple by buying a single house as a rental property
• Others take it to the next level by entering a partnership to build or purchase large buildings to be used for commercial purposes

Whichever route you prefer, you start by first having the resources to invest. A Self Directed IRA allows you to use your IRA money to invest in income-producing real estate, such as:

Long-term residential

Condos, family homes, or small apartment buildings are often the most popular choices among Self Directed IRA account holders. Investors can earn a good return from rent payments and appreciation in areas where supply has not outweighed the demand. 

Short-term purchases, or “flips,” run the risk of being construed as an active business within an IRA. This can subject the IRA to UBIT.

Land & lots

Buy-and-hold investors often prefer raw land and lots. Although this is a possible option, investors should proceed with caution. Do your homework to choose only those properties with the best potential.

Also never assume that water, sewer or electricity will be easily available for raw land and lots. Investors must be sure that the land will meet the legal, geographical, geological, and environmental requirements for its envisioned building(s).

Commercial properties

Commercial properties, such as hotels, service providers, retailers, or wholesalers, can offer higher rental payments than residential. However, this is dependent on the business being successful.

Investors must know everything related to the business, the industry it’s in, and the financial situation of the business owner before engaging in the investment. Commercial real estate specialists can be a great resource for this.

Partnership is also a great option for funding commercial properties due to their large size.

Real estate options

Real estate options are another alternative to earn returns without actually owning the property. Having an “option” means you have the exclusive right to purchase the property. The option document specifies the term in which only the option holder can buy or sell the property. 

This is a good choice for those who feel that buying real estate in their IRA requires too much money, risk, or time and effort to manage. IRA investors choose this route when their funds are limited.