Real Estate Investing

Did you know you can own real estate of any variety including raw land within your IRA? Savvy investors understand the link between value appreciation and income as it relates to risk-return balance in the world of real estate investing. Lack of Investor information for nearly 4 decades about the truths and fictions of investing within your IRA is driving a robust push today to learn the truth. In fact, since IRA’s were born in 1974 investing Americans have paid billions in real estate taxes that COULD have been avoided with some knowledge about IRS regulations around land/real estate investing within your Self-Directed IRA. Section 408 of the Internal Revenue Code allows for the purchase of property with funds held in many common forms of IRAs, including a Traditional IRA, a Roth IRA, a SIMPLE IRA a Simplified Employee Pension (SEP) IRA and Qualified Plans.

The Power of iPlanGroup … And YOU.

Some key principles to keep in mind when investing in Real Estate within your iPlan IRA.

Your IRA Cannot Purchase Property Owned by You or a Disqualified Person

You or a “disqualified” person cannot take an existing property that you own and purchase it in your IRA, or sell a property to yourself. The IRS classifies as “Self-Dealing.” If you or any disqualified person benefits in some way from a transaction with your IRA this would be classified as an “Indirect Benefit” which is in violation of IRA rules and regulations.

Real Estate IRA Investments Are Uniquely Titled

Your IRA should have a separate title to your name, all your investments; and investment documents must be in the name of your IRA not your personal name to avoid delays and comply with IRA rules.

EXAMPLE: “iPlan Group LLC FBO [for benefit of] [Your Name or Account #] Account Type, IRA”

YOUR IRA must pay all Real Estate IRA-related expenses

All transactions relating to any property owned by your Self-Directed IRA must be paid through your IRA including maintenance, improvements, property tax, and other related general bills, etc. Also, all income generated by property owned by your Self-Directed IRA must be paid into your IRA.

IRA Investments that Use Financing Must Pay UBIT

It is possible for your Self-Directed IRA to purchase real estate using financing as long as the loan is non-recourse.

NOTE: If you use this option unrelated business income tax (UBIT) will apply. You do not need to purchase a property outright with your IRA investment. Other options include undivided interest and partnering.

Investing in Real Estate with your IRA

With a Self-Directed IRA, you can invest in a wide range of real estate and related assets.
Your Self-Directed IRA allows you to invest in things like rental properties,
commercial buildings as well as international properties and mobile home parks

Residential Real-Estate

Purchasing residential property with your Self-Directed IRA is very similar to a traditional transaction. Once your property is purchased by your IRA, it is owned by your IRA. You personally do not own the property and cannot benefit from it in any way. This would be a considered a self-dealing transaction and is prohibited. Make sure that yourself, and any close family member does not benefit from the property owned by your IRA. Any income or expenses generated from the property need to be handled exclusively by the IRA.

Commercial Real Estate

Purchase everything from office buildings, to retail stores or warehouses all within your Self-Directed IRA. When purchasing commercial real estate, you can do it through your IRA alone, get a non-recourse loan, or even partner with other Self-Directed IRA holders. Your IRA is the owner of the property and is responsible for making all payments; including management fees, taxes, repairs and insurance costs. Any rental income generated from the property must go back to the IRA. The IRA may purchase the property in conjunction with other IRA’s or individuals.

International Properties

For many individuals the idea of investing in international properties can be a daunting one. Fortunately, it requires many of the same steps as purchasing a property within the United States. Make sure to do your research on the country, and the city in which you are looking to invest. Additionally, make sure to find out whose name the property can be titled under, all of the necessary parties to close the deal, and all of the applicable fees. Again, please be sure to avoid in any self-dealings or direct benefits as they are prohibited transactions and in violation of IRA rules and regulation.

Bank Owned / Distressed Properties

Today’s market has created a wealth of bank owned or distressed properties. When a home is foreclosed on, the bank then takes back ownership of the property. The Banks REO department will then attempt to sell the property for as much as they can get. Typically these homes are sold “as-is.”

Short Sale Properties

When purchasing a short sale property with your IRA, it’s considered an investment rather than a home purchase. Living in the home yourself would be considered a self-dealing transaction and is strictly prohibited. Purchasing a short sale property also gives the IRA owner multiple exit strategies to make the most out of your investment.

Raw Land

When purchasing raw land with your Self-Directed IRA, you have three options; purchasing the property 100% with your IRA, purchasing a portion of it, or through a non-recourse loan. Land purchased with a Self-Directed IRA has no time limit. It can stay under ownership of the IRA forever.

A Dynamic Approach

We’ll show you 3 ways to purchase real estate within your IRA







Purchasing Options

Use your passion for real estate to invest within your Self-Directed IRA

Purchasing With Cash

The IRS allows you to purchase property outright if you have enough funds in your Self-Directed IRA to cover all the costs (purchase price, taxes, insurance, repairs, etc.) All ongoing expenses are paid in total from your Self-Directed IRA. Any income/profits are returned to iPlanGroup and your IRA.

Obtaining a Loan

Within your Self-Directed IRA you can obtain financing (loan/mortgage) for a real estate investment. However, you must consider two points: Loans must be non-recourse. Per IRS regulations, an IRA cannot guarantee a loan or be used as collateral. A non-recourse loan only uses the property for collateral. In the event of default, the lender can collect only the property and cannot go after the IRA itself. Tax is due on profits from leveraged real estate. If your IRA uses debt financing (i.e., obtains a loan) on a real estate investment, a tax will be due on profits, which will be based on the percentage that your IRA borrowed. This tax is called Unrelated Business Income Tax (UBIT).

Family, Friends or Business Associates Partnership

There are alternate options if you don’t have sufficient funds in your Self-Directed IRA for a cash purchase. You can also do a percentage buy of the property with the remaining amount purchased by a partner. You could purchase 50% from your Self-Directed IRA, then a family member could purchase the other 50%.

NOTE: All ongoing expenses must be paid in relation to your percentage ownership. For example, for a $2,000 property tax bill, you would pay $1,000 and your partner would pay $1,000. Likewise, if the property collected monthly rent of $1,500, your Self-Directed IRA would be credited with $750 and your partner would receive the other $750.

Let’s assume that the real estate property you wish to purchase as part of your Self-Directed IRA costs $100,000. But you only have $20,000 remaining in your Self-Directed Roth IRA. Your friend offers to partner you, with the investment of a $30,000 traditional IRA and a business associate agrees to invest $50,000 of his own money. With all the funds combined you now have the sufficient amount to buy the property in its entirety. Your Self-Directed Roth IRA now owns a 20% interest in the property.

Title for the property reads:

iPlanGroup LLC Custodian FBO [Your Name] Roth IRA 20% Undivided Interest.

Your Self-Directed Roth IRA is now responsible for 20% of all expenses related to the property, and will also receives 20% of all income generated by the property. A year after purchasing the property, you and your partners decide to sell it for $150,000. With a 20% interest, your Self-Directed Roth IRA receives $30,000 or 20% of the sale proceeds—an amazing 50% return ($10,000 profit) on your original $20,000 investment.

This example illustrated how even without a large amount to invest you can still create a profitable real estate investment plan with you Self-Directed IRA.

NOTE: Although this type of real estate transaction is common place with Self-Directed IRAs you will need to make sure that you avoid all possibilities of ‘self-dealing’ which is prohibited by the IRS regulations. Consult with a financial or tax professional.

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