Real Estate IRA Frequently Asked Questions
- How do I purchase real estate with my Equity Trust self directed IRA?
- What are the differences between buying real estate for myself, personally, and purchasing a real estate investment for my IRA?
- Can I have funds remitted directly to a seller?
- How fast can Equity Trust transact a purchase?
- Can I transfer/rollover funds from an existing IRA, 401(k), or 403(b) to a self directed IRA at Equity Trust, for the purpose of investing in real estate?
- I plan on purchasing a property with my IRA that will generate rental income. Does the rental income have to go back to my IRA?
- How does the rental income actually get back into my account?
- Can my IRA purchase real estate that I own presently?
- Can my IRA purchase real estate that my corporation, partnership, or LLC owns?
- May I live in or work in a property that my IRA owns (e.g., personal residence, retirement home, office)?
- Can my IRA invest in a newly-formed entity (e.g., limited partnership, limited liability company, c-corporation, land trust) that will invest in real estate?
- Can my IRA purchase an interest in a Subchapter S Corporation?
- May I use funds from my IRA to renovate property, in order to sell it at a higher price?
- What if I do not have sufficient funds in my IRA to purchase a property outright?
- How do I sell a property owned by my IRA?
- When I sell a property owned by my IRA, may I keep a portion and send the remaining portion to Equity Trust ?
- How can I learn more?
- How do I get started?
How do I purchase real estate with my Equity Trust self directed IRA?
The process of purchasing real estate with your Equity Trust self directed IRA is very similar to purchasing conventional investments with your IRA, with a few exceptions. Once an account has been established and properly funded (please see how to open an Equity Trust Self Directed IRA), clients instruct Equity Trust, as custodian for their IRA, to purchase the specific investment property.
To make the investment, a Real Estate Direction of Investment form must be submitted to Equity Trust. Information included on the Real Estate Direction of Investment form will include: location of the property your IRA is purchasing, the amount needed from your account, where the funds need to be sent, and what documents Equity Trust requires as custodian for your IRA. Once your Real Estate Direction of Investment has been received, Equity Trust will act on your instructions and remit funds to the title company/closing agent/attorney.
Click for Forms and Applications If, at any time, you have questions concerning completing a Direction of Investment form, please feel free to contact the Equity Trust Client Services team. We’re here to serve you and to meet your individual needs.
What are the differences between buying real estate for myself, personally, and purchasing a real estate investment for my IRA?
There are four main differences between purchasing real estate for yourself and for your IRA:
- Title: When purchasing an asset for your IRA, it is imperative that it be properly titled to your IRA. Specifically, it must read: Equity Trust Company Custodian FBO Your Name IRA. Equity Trust will not accept any investments which are not properly titled.
- Funding: When purchasing an investment (or any portion of an investment) for your IRA, funds must come directly from your IRA. Equity Trust will send the funds directly to the title company/closing agent/attorney, per your instructions.
- Expenses/Income: Any expenses associated with your IRA investment must originate in your IRA account and any income must be remitted to your IRA account.
- Signatures: Documents pertaining to your IRA investments must be signed by Equity Trust Company, serving as custodian on behalf of your IRA.
Can I have funds remitted directly to a seller?
Yes, by completing a Real Estate Direction of Investment form, you will instruct Equity Trust where to remit funds. Typically, funding to purchase real estate is sent to a title company, attorney, or escrow agent. Funds can be remitted by check, cashier’s check, or wire.
How fast can Equity Trust transact a purchase?
The normal processing time for an investment is three (3) business days. Checks are then sent via regular mail to the address specified by the client on the Real Estate Direction of Investment form. Clients do have the option of having funding sent overnight or by wire, for a special service fee.
Equity Trust does offer expedited service, for a special service fee.
Please Note: For expedited service, Equity Trust must receive all necessary investment documents no later than 10:00 AM EST. For more information for special service fees and procedures, please see special service fees.
Can I transfer/rollover funds from an existing IRA, 401(k), or 403(b) to a self directed IRA at Equity Trust, for the purpose of investing in real estate?
Yes, at Equity Trust we believe that you’re the best steward for your retirement assets. You can choose to transfer/rollover all, or portions of, your existing retirement accounts to Equity Trust, in order to self direct them into real estate investments in which you have confidence, knowledge and expertise.
For more information, please see Transfer and Rollover IRAs into an Equity Trust Self Directed IRA.
I plan on purchasing a property with my IRA that will generate rental income. Does the rental income have to go back to my IRA?
Yes, all income generated by a property owned by your IRA must return to your IRA, in order to retain the tax-deferred or tax-free status of the investment.
How does the rental income actually get back into my account?
Rental payments are remitted to Equity Trust for the benefit of your IRA. The checks or money orders are made payable to "Equity Trust Company Custodian FBO Your Name IRA #xxxxx. Once received, the checks or money orders are deposited into your account. All checks must be remitted with an Equity Trust payment coupon.
Checks may be mailed directly to Equity Trust, or they may be mailed to the property manager for record-keeping purposes before being forwarded to Equity Trust. If several checks are to be remitted per month, mailing them in one envelope will save time and postage, but they must include a separate payment coupon for each check.
Please note: As the investment is owned by your IRA, all rental checks must be made out to the IRA with proper titling: “Equity Trust Company Custodian FBO Your Name IRA #xxxxx.
Can my IRA purchase real estate that I own presently?
No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property or interest in a property which is presently owned by a disqualified person. Disqualified persons would include yourself and family members of lineal descent. See Prohibited IRA Transactions.
Can my IRA purchase real estate that my corporation, partnership, or LLC owns?
No. See previous questions.
May I live in or work in a property that my IRA owns (e.g., personal residence, retirement home, office)?
No. This is considered a prohibited transaction (see IRC 4975).
Can my IRA invest in a newly-formed entity (e.g., limited partnership, limited liability company, c-corporation, land trust) that will invest in real estate?
Yes. Investments in newly-formed private entities are not prohibited under the IRC, with the exception of Subchapter S corporations (please see IRS Letter Rulings).
Can my IRA purchase an interest in a Subchapter S Corporation?
No. IRAs are not qualified as investors in Subchapter S Corporations (please see IRS Letter Rulings).
May I use funds from my IRA to renovate property in order to sell it at a higher price?
Yes. However, your IRA must pay all expenses associated with a property that it owns, including the renovation of the property. Further, all proceeds associated with the sale of your IRA’s investment in a renovated property must be remitted to Equity Trust, for the benefit of your IRA.
What if I do not have sufficient funds in my IRA to purchase a property outright?
In general, IRA investments should be bought outright, as any use of debt financing might incur the production of unrelated business income tax (please see Unrelated Business Taxable Income and Your IRA). If debt financing is used, it must be in the form of a non-recourse loan, meaning that, if your IRA fails to make payments, the only collateral the lending institution can come after is the property itself, and not the IRA. IRAs may purchase an undivided (and proportionate) interest in a property, which would eliminate the occurrence of UBTI.
How do I sell a property owned by my IRA?
When you are ready to sell a property that is owned by your IRA, you will need to request the original documents from Equity Trust. This is done by completing a Sale Direction of Investment form. Once the property has been sold, all funds from the sale must be remitted directly to Equity Trust for the benefit of your IRA. This ensures maintenance of the tax-free -deferred environment. These funds will need to be remitted with a payment coupon stating what asset the payoff is for.
When I sell a property owned by my IRA, may I keep a portion and send the remaining portion to Equity Trust?
No. All income generated from the sale of a property owned by your IRA must return directly to your IRA.
How can I learn more?
For more information on Equity Trust self directed IRAs, please see Self Directed IRA Investment at Equity Trust FAQs.
How do I get started?
If you are ready to take control of your retirement funds with a truly self directed real estate IRA, please see the following links for more information:
How to open a Self Directed IRA at Equity Trust.
How to Transfer and Rollover IRAs into an Equity Trust Self Directed IRA.
Please refer to Real Estate Investment Procedures and to the Step-by-Step: Real Estate Direction of Investment Guide.