Did You Know???
The great majority of investors believe that the money held in their Individual Retirement Accounts (IRAs) can only be invested into stocks, bonds, cash mutual funds or other "traditional" type investments. Not so!
The fact is you can invest in real estate, tax liens, mortgages and other high-yielding investments through your IRA. How? You have to understand that you and your IRA are not one and the same. IRAS are established to benefit you, but they are, in truth, a separate "trust." An independent custodian holds the assets in the IRA for you.
If you have a piece of investment real estate you want to hold for income, your IRA can purchase the property. The title is held in the IRA, and is titled to the IRA. For example, if it were in my name, the title might read, "XYZ Trust Company Custodian For the Benefit of (FBO) Brent Greer IRA." Get it?
Here are the major benefits: 1)Tax advantages -- When you sell you do not pay tax at that time because all the proceeds are kept inside the IRA. Any gain you have from the sale of real estate within your IRA will be tax-deferred (tax-free for a Roth IRA). 2)Access to capital - A frequent barrier to purchasing investment real estate is initial capital. But many people have money in their IRA that can be used to buy property for income (multi-family, commercial), raw land, even mobile homes. In addition, you do not have to own the entire property yourself. You can go into partnership with another investor.
There are some prohibited transactions, primarily those where you or your relatives have prior ownership. Specifically, your IRA cannot purchase a property that you or a relative are selling. These are called "self-dealing" transactions.
Your self-directed IRA might be a handy vehicle for helping you get into investment real estate without using out-of-pocket funds.