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Most of the plans that allow you to invest in real estate will let you invest in rental properties, commercial properties, and even vacant land. Some will even let you invest in foreign companies.
Note: You cannot buy personal houses in an IRA, it must be for investment purposes.
Buying Real Estate With IRA Funds
Buying real estate with IRA funds cannot be done by the individual who owns the IRA. An account custodian must buy the property for the IRA using only money in that IRA. This poses a problem, how can you get a plan which only allows you to invest a few thousand dollars a year to buy a house worth $100,000 or more? Well there are a couple things you can do.
You may go in with a partnership with another person such as a friend or a spouse. There is also something called a non-recourse loan which allows you to get some leverage.
A non-recourse loan is a loan that banks lend out to IRAs. The loan decision is based entirely on the value of the property and how profitable that property is.
However there is a trade-off. A non-recourse loan usually comes with a higher interest rate and normally banks will want you to put a down payment of at least 30-50% on the house.
Holding Real Estate In An IRA
Once you bought real estate in your IRA you will have to pay all of the expenses to the property from money in the IRA. That is why you have to have some money on the side in addition to the money you used to buy the property.
If your IRA cannot cover the expenses of the house it will have to be withdrawn from the IRA and you must pay the taxes and possibly the early retirement penalty on the full price of the house. But remember if the house is rented then all money received from the rent will be kept in the IRA. This could help pay some of those expenses.
Once you turn 59 ½ you can take real estate out of the plan, but you will need to pay taxes on the full price of the house. You may also sell the property at any time in the plan and use the money to invest into new things. However it may not be sold to a family member.
Self Directed IRA Real Estate Investing
Self Directed IRA Real Estate Investing can be profitable, but it does come with a lot of rules and regulations. If you violate one of their rules your IRA may be cancelled and you will have to pay taxes/penalty on the full amount of the securities in your IRA.
For more info check out this Real Estate investment in IRA page
Return From Self Directed IRA Real Estate Investing to IRA Account Rules
