There are many reasons why investors choose to invest in a self-directed IRAs, but one reason is flexibility. Unlike traditional or Roth IRAs, a self-directed IRA gives account holders the option to invest in non-traditional assets, like real estate.

A self-directed IRA also makes it possible to invest in real estate at a tax advantage and to leverage your savings without penalty, even if you’re under the age of 59 1/2.

If you’re thinking about using your self directed IRA to invest in real estate, these steps below help you reach your goals. Don’t have a self-directed IRA or need to work on funding it? Contact us today and our experts can help you get started.

1. Speak To An Investment Advisor

One of the first things you should do is speak to a qualified investment advisor. There are many rules that govern how and when you can use your self-directed IRA funds, particularly when it comes to investing in real estate. Speaking to an advisor upfront can help you avoid any costly mistakes.

2. Decide How You’ll Fund Your Investment

There’s more than one way to finance your real estate purpose. Your IRA can be used to purchase the property outright. You can also choose to partner your IRA funds with funds from other accounts, either your own or another person’s. Finally, you can also choose to open an IRA LLC and invest in the property through that LLC. Your advisor can help you choose the best option for your unique opportunity and long-term goals.

3. Research The Market

Real estate can be a lucrative investment strategy, but that’s only true if you invest in the right types of property. Before you make a move, practice due diligence. That includes researching the property’s location and potential before you jump into an investment opportunity.

4. Decide How You’ll Manage The Property

Will you manage maintenance or do you plan on hiring a property manager? How will you vet tenants? You may not need to finalize these decisions until you own the property.

Answering them ahead of time, however, can help frame the amount of time and money required to properly manage an investment property — something you want to know before purchase.

5. Determine Your Ongoing Expenses

When you purchase real estate with funds from your self-directed IRA, you must do so in the name of your IRA and not under your name. In addition, all expenses, including utility bills, maintenance expenses, property taxes, etx., must be paid for with funds from the IRA.

Before you purchase property, make sure that the IRA, including property income, can accommodate those expenses.

6. Work With Your IRA Custodian To Verify Offer And Complete Purchase

Once you identify an investing in real estate opp, the next step is to work with your IRA custodian to complete the required paperwork, including a Buy Direction Letter, and finalize the deal. Once the contract is executed, your IRA custodian will release payment and you can close escrow and complete the transaction.

7. Continue To Operate Within The IRA Guidelines

As you manage your property, it’s important to do so in a manner that adheres to all IRA rules. This includes managing financial obligations through the IRA and returning earnings back to the IRA. Failure to follow transactions and engage in prohibited transactions rules can disqualify your self-directed IRA

Leveraging your IRA to invest in real estate can be a great way to diversify your retirement portfolio with an ongoing income. However, doing so requires diligent research and an understanding of all self-directed IRA rules as they relate to real estate investments.

Horizon Trust is committed to helping our clients reach their investment goals and our experts can help you navigate the complexities of investing in real estate with a self-directed IRA. Call us today to get started.