As you plan for retirement using your SDIRA, one of the most important steps is selecting the best assets for long-term growth. Having a self-directed IRA opens up many opportunities, but one of the most common is real estate investment.

Real estate is an asset that can result in a big payout or bring in a steady cash flow should you decide to rent it out. When done properly, purchasing rental properties can help you build a secure nest egg and round out your portfolio.

If you are interested in exploring real estate investments, here are five go-to steps to help you manage a self-directed IRA rental property.


But First…Why Do it?


Before diving into a big investment like rental properties, consider if this is best asset for you and try to determine how they can build your account. Rental properties allow for increased growth potential. The ROI can be very good, especially if you have good tenants and keep up with your property maintenance.

You are in control of your property. You decide on the location, the type of property, and personal select the tenants.

Additionally, your SDIRA will own your rental property; this protects your investment in the case of any financial mishap. Your investment will continue to grow with tax-advantaged savings no matter your financial situation.


1. Do the Research


Any big investment deserves a fair amount of due diligence. You want to be sure you follow all of the rules set-up by the IRS. Select the IRA that works best for your situation, whether it is a tax-deferred traditional IRA or a tax-free Roth IRA. Decide whether you plan on keeping the property, what type of property you are interested in, and select a prime location.

Following your research and planning, secure the funds for your IRA purchase. Though it is best to use funds from your own IRA, rental investment can be costly.

You can connect with a partner or use outside financing. Keep in mind, if you choose to use outside financing your account could be subjected to UBTI, or an unrelated business income tax. After you secure your funds, you can move forward with your investment plan.


2. Know What You Can’t Do


Part of performing your due diligence is properly following the rules set by the IRS. A failure to follow these rules can lead to a disqualified account or severe penalties.

Purchased property is owned by your SDIRA. All expenses must be paid and returned through your account. It is imperative that you keep your IRA and personal account separate from each other. Additionally, you cannot use your IRA property for any reason.

As you select your property, keep in mind that you cannot purchase any property previously owned by you or a disqualified person. Also, you cannot rent your IRA-owned property to a disqualified person. If you are unsure how to properly select your assets, consult a financial advisor to avoid any unwanted penalties.



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3. Select a Qualified Custodian


Setting up an IRA properly can be a tricky business. The IRS mandates that every SDIRA account must have a certified IRA custodian.

As you search for the best one for your needs, be sure to select one that knows real estate. The right custodian will have the information you need. Additionally, you want to be sure they fit your needs when it comes to fees, customer service, and expertise.


4. Select the Investment


After all your research, you can select your investment. Make sure you search the market and check values. Are you partnering, buying directly, or using an LLC? Any offer you decide to make will exclusively be through your self-directed IRA.

When choosing your real estate investment, consider the state of the property. Consider how much you plan to spend and what kind of rental you want. Once you’ve found what you are looking for, inspect and purchase the property. Be sure you have enough to cover your closing costs.


5. Formulate a Business Plan


As you put the final touches on your rental property purchase preparations, the best course of action is to have a business plan. Factor in your rental expenses and home upkeep. Be prepared for just about anything. You can never be certain when a water heater may go, or a roof may need replacing.

Move forward with the process by selecting a good tenant. Write up a potential agreement and start interviewing candidates. Be vigilant. A bad tenant can result in some costly repairs. Take the time to write up a solid contract and background check your tenants. Once you have everything squared away, you can sit back and let your account grow.


Perform Your Due Diligence


Purchasing a rental property can be a great move if you want exponential account growth over the course of your IRA. Be sure to follow all SDIRA rules as you set-up your investment and do your research to select the best custodian, property, and tenant. Take advantage of tax-advantaged SDIRA savings today and explore your rental property investment options.