IRA Investor Grows His Financial Future with Farmland

Kurt of Minnesota has taken his real estate IRA rural to sow an investment that is already flourishing into quite a nest egg.

Kurt used his knowledge about farmland to buy land through his retirement account and rent it out to create a constant stream of passive income. He had bought and sold Iowa farmland outside of his IRA in the past but wanted to make a purchase with long-term benefits. “I thought (buying the land with) the IRA would be a good fit,” he says.

Kurt funded most of the transaction with his Equity Trust IRA money and took out a non-recourse loan to cover the balance. He purchased 40 acres of farmland for $1,750 per acre. The land gained him more than 6 percent in profits from the annual cash rent, but the investment’s real gain is in the property’s appreciation. It has appreciated to $2,700 per acre or more in one year. He already received an offer of $2,650 per acre.

“So, if you add in appreciation, the investment would have a return on investment of close to 60 percent in one year … I’ll take that any day!” he says.

“If you add in appreciation, the investment would have a return on investment of close to 60 percent in one year … I’ll take that any day!”

Kurt, Investor, MInnesota

Kurt plans to hold onto the property for a while and earn income by renting it out. He’s had no problem finding farmers who want to occupy the land.

“Actually,” he says, “There’s quite a demand for agriculture/renting. I guess weather can have an effect if you have a prolonged period of drought, but in a state like Iowa, the demand is so high, there’s kind of a long list of renters available.”

He also knew that crop prices would more than likely increase, which also increases the value of the land.

“As corn and soybean prices skyrocketed, so did the value of the land. Farmland in a self-directed IRA is a powerful vehicle,” Kurt says. “This 40-acre parcel in Iowa was undervalued, and I bought it at the right price.”

In addition to nearly doubling the value of his investment, Kurt is securing a tax-free income that he can use in retirement.

“As an investment within the self-directed IRA, I will be able to defer income and if I ever choose to sell this property, the tax treatment is very favorable long-term.”

Kurt notes that you don’t have to come into the game as a farmland real estate expert to make this type of investment, but just like with any type of investment, expect to take time to research the potential investments and be prepared to fill out some paperwork to get the deal off the ground. After that, he says, the required effort decreases significantly.

“I’ve hardly had to do much at all the last few months,” he says. “You get your cash rent checks from the farmer who rents the grounds, that goes directly to (Equity Trust), and it’s all kind of taken care of from there. There’s very little computer time or paperwork that you have to get into.”

Kurt credits Equity Trust for making the investment process easier and helping him discover the possibilities for his IRA through webinars and other educational resources.

“The company has been a real eye-opener to the potential of the self-directed IRA,” he says.

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Can my IRA purchase real estate that I currently own?

No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person, which includes yourself.

Can my IRA purchase real estate that my corporation, partnership or LLC owns?

No. This is considered a prohibited transaction (see IRC 4975).

Case studies are provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal. Information included in the above case study was provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.

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