If you want to buy a rental property but don’t have enough funds for the down payment, there is a simple solution. You can move money from an IRA into a self-directed IRA for real estate investments. Depending how much money you have available in your self-directed IRA, you may want to put down the minimum down payment required by your lender or more. In most cases, lenders want at least 20 to 25 percent down for a home that is not your primary residence. In addition to using your self-directed IRA money for a down payment, you either use other money to pay cash for the home or secure a mortgage for the remainder of the balance. Not everyone can afford to pay the full purchase price of a property using retirement monies. When it comes to owning real estate within a self-directed IRA, there are numerous advantages.
Making your own decisions
Many people like the flexibility that comes with buying a rental property or real estate investment with their own retirement money. When you use a self-directed IRA for real estate purchases, the trustee of your account or administrator will not tell you which real estate property to buy. If you like the DIY freedom to make your own investment decisions, rely on your own research and due diligence. With a truly self-directed IRA that allows for checkbook control, you can write the check for the down payment at closing. The key is to rely on an IRA LLC so you cut out a middleman, especially in the competitive real estate market.
Fixing it up or renting it out
To make money from your real estate investment, you have several options. Some people like to fix and flip a property while others desire rental income. Rental income gets deposited back into your self-directed IRA account to grow your retirement savings. Although you can take care of minor repairs around the rental home, you have to hire professionals to take care of any improvements that boost the value of your rental home.
Selling your investment property
When it is time to sell your rental property, the proceeds or profits go back into the self-directed IRA. One strategy you can use to build retirement wealth is to buy an inexpensive home and wait for it to appreciate in value. Once you make a profit, return the money into the self-directed IRA to buy more expensive properties with just as much potential for a ROI (return on investment).
Another great benefit of a self-directed IRA is the fact that rental income that comes in is then redirected into other alternative investments within your account or in cash to used for maintenance. A custodian doesn’t stand in between your IRA funds and various real estate and alternative investments.
Just because you don’t have $200,000 or more in retirement savings doesn’t exclude you from investing in real estate. Just using your self-directed IRA for a down payment gives you a door into the booming rental market. You are only limited by your imagination in terms of what you can buy with a self-directed IRA. You can also team up with other people to buy a real estate property. What you can’t do is use your rental property for your own benefit as a vacation home or to house close relatives and other disqualified people.
At New Standard IRA, we take pride in setting you up with a self-directed IRA including those with checkbook control. When you want to follow the IRS rules for using a retirement account to own rentals or fix-and-flip properties, set up a self-directed IRA with us. For more information about using a self-directed IRA for real estate, please contact us.