Using Your IRA to Invest in Real Estate

Real Estate

Many people want to invest in real estate, but they struggle to come up with the capital to get started.  Often times they have the capital sitting in an IRA and don’t realize they can use it.  Using your IRA to invest in real estate may be a viable option for you.

IRA or 401(k) to fund real estate investments

Let me first say, when doing this there are specific rules that must be followed in order to continue receiving the tax benefits of these accounts.  Thus, go to a CPA to discuss this strategy and what it entails.

This post is meant to give you the basic idea and let you know that it is another option to finance investment property.

Fix, Flip or Rent

Here’s what is great – you can do fix and flips or buy and hold rentals using this capital.  It doesn’t matter in the end the as money and profits get funneled back into the IRA until you deploy it again.

Example

Let’s use a fix and flip example for simplicity – you find a property for 80k that needs 20k in repairs.

You use your real estate IRA (which is just another name for an IRA that invests in real estate) to purchase the property and renovate it.  It then sells for 130K, netting you a 30k profit.

The 130K goes back into your IRA and you have just made a 30k or 30% tax free profit.

By using this tax sheltered strategy you can build capital faster as you are not shelling out tax dollars each year, but rather making more money off that money.

If instead you purchased a rental property, then the cash flow generated would go into the IRA until you sold the home at which point the initial capital and any profit on the sale would funnel back to the IRA account.

Alternative Methods

Often people get stuck in thinking the only way to finance a property is by traditional means.  However, using an IRA to fund real estate is just one of many methods outside of getting a traditional bank loan.

Again, be sure to have a CPA work with you on using your IRA so that everything is in compliance and you don’t end up with a tax bill.



If you enjoy my rental property investing tips, then you will love the book:

ScaredyCatGuide – Investing in Rental Properties

I walk you step-by-step through finding, buying and renting out a rental property.  The book is your personal mentor!


Be sure to use the property calculator so you can run the numbers and buy right!

 

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