Three Most Popular Ways to Invest in Real Estate with a Self Directed IRA

There are three basic ways to purchase real estate with an Equity Trust self directed IRA:

1. Purchase with cash
2. Partner with family, friend, or business associate
3. Borrow money for investment

Learn more below, or contact an Equity Trust retirement specialist at 1-888-382-4727.

1) Purchase with Cash - The Most Straightforward Approach

If you have sufficient funds in your self directed IRA to cover the purchase price, closing costs, taxes, insurance, etc., you can purchase a property outright. All ongoing expenses are paid in total from your self directed IRA, and all income/profits are returned in total to the IRA.

2) Partner with Family, Friend, Business Associate

If you don't have enough funds for a cash purchase, your self directed IRA can purchase an undivided interest in a property.

For example, your self directed IRA could partner with a family member, friend, or business associate to purchase a property for $100,000. The friend could provide 70% of the purchase price ($70,000), and your self directed IRA could purchase the remaining 30% ($30,000).

All ongoing expenses must be paid in relation to your percentage ownership. In our example, for a $1,000 property tax bill, the friend would pay $700 (70%) of the bill and your self directed IRA would pay $300 (30%).

Likewise, if the property collected monthly rent of $1,000, the friend would receive $700 (70%) and your self directed IRA would receive $300 (30%).

Learn more about purchasing real estate with an IRA with partners.

3) Borrow Money (Receiving a Loan) for Investment:

An IRA may obtain financing (loan/mortgage) for a real estate investment. However, you must be aware of two points when considering this option: 

• Loan must be non-recourse - Per IRS regulations, an IRA cannot guarantee a loan or be used as collateral (see Prohibited Transactions). A non-recourse loan only uses the property for collateral. In the event of default, the lender can collect only the property and cannot go after the IRA itself.
• Tax is due on profits from leveraged real estate - If your IRA uses debt financing (i.e., obtains a loan) on a real estate investment, a tax will probably be due on profits. This tax is called unrelated business income tax (UBIT) Learn more about UBIT.