Due to the unique record-keeping required for investing with self-directed accounts, not all IRA providers offer the option to self-direct a retirement account. Colin’s search for a self-directed IRA custodian led him to Equity Trust Company. He opened an Equity Trust IRA and transferred money from another retirement plan.
Investment becomes a future campground rental
After negotiation, Colin’s IRA purchased the property for $39,000. His IRA still has money left over for property taxes and to pay for modest improvements. He envisions renting the spot for camping.
“There had been a house on the land previously, but it burned down,” he says, adding, “It has a septic tank that hasn’t been used for a decade. There’s city water connected to it. I’m hoping to hire someone to build bathroom facilities. You’d have a toilet and running water – for camping in warm weather, it should be sufficient.”
For the time being, Colin rents the property to a man who pastures horses there and makes repairs as part of the rental agreement. This works out for Colin, because IRS rules prohibit him from performing any work on property that his IRA owns. Any expenses incurred must come from Colin’s IRA, and the rent he receives goes back into the IRA, tax-free.
Colin hopes to eventually rent the space to campers and possibly have a cabin built there at some point, but he wants to keep the expenses relatively low to be consistent with his initial investment.
Based on his acquaintances’ experience and his knowledge of the tourism in the area, Colin doesn’t anticipate having trouble finding renters.
For others considering investing in real estate with an IRA, Colin adds that a little due diligence can make the self-directed investing process less intimidating.
“I think anybody who is willing to do the work and research can put something like this together,” he says. “That’s the whole self-directed thing.”
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.
Am I restricted to only purchasing residential property with my IRA?
Can I use funds from my IRA to renovate property to sell it at a higher price?