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How Can I Use My IRA To Invest In Real Estate?

At 1031 Exchange Place, we specialize in helping investors leverage their tax-deferred investment strategies. One such strategy you can use to invest in real estate with your Individual Retirement Account (IRA) is by setting up a self-directed IRA (SDIRA). A SDIRA allows you to diversify your investment portfolio by investing in alternative assets, including real estate. Here’s a step-by-step guide on how to use your IRA to invest in real estate:

  1. Choose a self-directed IRA custodian: To start, you’ll need to select a custodian who offers self-directed IRAs. These custodians specialize in administering alternative investments, such as real estate.
  2. Transfer or rollover funds: Next, transfer or rollover funds from your existing IRA, 401(k), or other qualified retirement account to your new self-directed IRA. Consult with your custodian and financial advisor to ensure proper handling of the transfer process.
  3. Identify your investment: Once the funds are available in your SDIRA, research and identify the real estate investment you’d like to make. This could be residential, commercial, or undeveloped land, as long as the investment complies with the rules and regulations set by the IRS.
  4. Perform due diligence: Thoroughly research the property and conduct necessary due diligence to evaluate the investment. It’s essential to understand the local market, property condition, and potential risks associated with the investment.
  5. Direct your custodian to make the purchase: After identifying the property and completing your due diligence, instruct your SDIRA custodian to make the purchase on behalf of your IRA. The property title will be held in the name of your IRA, not in your personal name.
  6. Manage your investment: Once the purchase is complete, all property-related expenses (e.g., maintenance, taxes, insurance) must be paid using funds from your SDIRA, and all rental income or profits must be deposited back into the account. This ensures that the investment remains tax-deferred or tax-free, depending on the type of IRA.
  7. Stay compliant with IRS rules: Ensure you are adhering to all IRS regulations and prohibited transactions involving your SDIRA. For example, you cannot live in the property, personally guarantee loans used for the investment, or use the property for any personal benefit.

It’s essential to work with an experienced custodian and financial advisor to ensure you’re following all relevant laws and regulations. At 1031 Exchange Place, we are here to support and guide you in your real estate investment journey. If you have any questions or need assistance, please don’t hesitate to contact us.