How to invest in real estate with your self-directed IRA

What is a self-directed IRA account?

Unlike a regular IRA that you open with a brokerage firm, a self-directed IRA allows you to take control of your own investment. And it’s not limited to just stocks, bonds, and mutual funds.

What can you invest in with a self-directed IRA?

With a self-directed IRA, you can invest in real estate, private equity, mortgage notes or notes, foreign exchange, offshore funds, commodities, such as oil or petroleum, and precious metals, such as gold, silver, etc.

How to use a self-directed ROTH IRA account in your real estate investment?

If you contribute money to your Roth IRA, that money grows tax-free, since your contributions are after-tax money. With what you have in a self-directed Roth IRA, you can buy rental properties. The rental income generated is tax-free. When you sell your rental property for a profit, it is tax-free. If you’ve ever ended up in legal litigation, your real estate in your self-directed IRA is protected, because you don’t own it. Your IRA owns the properties.

Isn’t that a great retirement plan and asset protection strategy?

How do you buy real estate with a self-directed Roth IRA?

First, you must have a self-directed Roth IRA set up. You can buy real estate in several ways. If you have enough money in your IRA, you can buy everything with cash. Another option is to buy with a non-recourse loan, which requires at least 50% of the purchase price as a down payment. One thing to remember is that the non-recourse loan has higher interest rates, which may reduce your earnings or your cash flow.

So my suggestion is, if your IRA fund isn’t enough to buy real property for cash, then consider other investment options to build your cash first.

You can build your cash by lending money through LendingClub.com or Prosper.com. Both LendingClub and Prosper.com allow you to open a self-directed IRA to finance your lending business.

Or you can invest in other types of investment offerings through your company IRA.

Either way, a self-directed one is a great way to diversify your retirement investment and gives you more control. Some self-directed IRA companies even give you “checkbook control,” which means you have the ability to write checks when you need the money, instead of applying to the company and waiting for the checks.