You have cash, that wonderful stuff of which great investments are made, and you know that investing in real estate in Bend is a sound long-term decision. One small problem, or so you think: That lovely cash is sitting in your IRA, and you know you can't buy real estate with it. How do you know? Because you asked the company that administers your account if your IRA could own real estate, and they said, "No." WRONG!!!! The administrator should have said instead, "Yes, but not with us."
Your administrator is not set up to handle real estate, so they have no incentive to say yes, but retirement accounts can own real estate!
First step: Establish a self-directed retirement account with a company that specializes in real estate IRAs.
There are things you can do with this new fund and some things you cannot do.
You can:
1. Buy and sell many types of real estate including raw land, rental properties, condos, fixers, commercial property, etc. The IRA buys, owns and sells, not you personally. The custodian of the IRA buys the property in the name of your new self-directed IRA.
2. If the property is rented the income must come to the IRA, not to you, and the expenses must flow in and out of the IRA as well.
3. Financing must be "non-recourse," which means the property and not the IRA is the sole security for the loan. This requires seller financing or private loans.
4. Your real estate IRA can buy a partial interest in a property.
You cannot:
1. Buy a property that you, your spouse or certain family members already own and cannot sell a property it owns to you, your spouse or certain family members.
2. You, your spouse or certain family members cannot have any personal use of the property owned by the IRA and cannot lease it to your business.
So SHOULD you use your IRA to buy real estate? Probably not if you want to use the depreciation deductions offered by rental property because it will be wasted in your IRA. Raw land, fixers and rental property with no loan are perfect candidates. If your real estate IRA buys, owns and sells the property, the profit would compound in your IRA tax-deferred or TAX FREE if it's a Roth IRA!!!
Of course, you need to do your homework. Analyze carefully the operating expenses and income, cap rates and other rates of return and the depreciation. Give me a call if you want help with that analysis.
And give me a call if you would like a list of real estate IRA custodians. Also, a good read is "IRA Wealth" by RIce and Dirks.
HAPPY INVESTING! Time was never better to achieve great long-term gains.
**** I am not an attorney or accountant, so please consult an expert on your particular situation before taking any action.