Purchasing Real Estate with your IRA Part 1
Information for Buyers

Part 1 of 2

By:  Lindsay Jiricek, Broker Associate—Sears Real Estate May 08

Did you know you could buy real estate with the money in your IRA or 401k?  It’s true!  This type of investing has been happening for years! 

In my experience, it seems that people feel comfortable in two types of investments:  stocks/bonds/mutual funds or real estate.  My father, a stockbroker of 35 years, always said, “invest in what you know.”  I have personally owned real estate investments & believe it is important to you know about the opportunities that exist to use the money already in your retirement fund to buy property.  This is such a great time to consider buying investment property—this might be a way for you to do it! 

Here are a few things you might want to consider if you want to buy real estate with your retirement funds:
1.  Not all investment advisors (or real estate brokers) are able to assist you with this type of a purchase.  Don’t be fooled—some investment brokers will even tell you that buying real estate with your IRA is not possible.  Not true!  We can recommend people that can help you with this type of investment.

2.  You must follow all of the rules and regulations (to the “T”) established by the IRS.  Not following the rules subjects you to taxes and possible penalties in your retirement account.  Don’t fear—professionals will assist you in understanding these guidelines.

3.  This may not be an investment vehicle for you to consider if you like lots of advice from your investment advisor.  While you will have a custodian & an administrator to oversee your account, your custodian cannot give you any financial advice.  You are responsible for managing the account & the details of how it operates.

4.  Don’t have a lot of money in your IRA?  No problem!  In fact, you can purchase all different types of real estate with your IRA including raw land, options, water rights, homes, promissory notes, & commercial properties.  If you have just a little bit of money, we can help you determine what would make sense for you.

5.  You or Your IRA can “borrow” money!  If you take the loan as an individual (not part of the IRA), you would be considered a partner with your IRA because you & your IRA account are actually considered separate entities.  Typically, individuals can borrow up to 80-90% of the value of real estate.  However, the IRA can usually borrow only up to 65% of the value. 

This is just the tip of the iceberg as it relates to buying property with your IRA or 401k accounts.  Please learn more in part 2 of this topic: “IRS Rules Associated with Your IRA Real Estate Purchase”