self directed iraBuying real estate with your self-directed IRA is quite simple to do once you know the proper steps.  Many people are unaware that they can fund IRA and direct it to buy real estate on their behalf.  Below are the steps you need to take if you wish to purchase real estate with a self-directed IRA.

Step #1 – Establish An Account With A Trust Company – You can find several trust companies who manage self-directed IRA’s by going online and typing the words “self-directed IRA.”  Setting up an IRA with a trust company usually takes only minutes by completing a simple application.

Step #2 – Fund Your Account – Now you have to fund the account, which is just as easy as opening the self-directed IRA.  The main ways to fund your account are by check, wire transfer or rollover.  If you have an existing retirement plan such as an IRA, 401k, or 403b these funds can be transferred to a self-directed IRA allowing you to make real estate IRA investments.  Check with your current or previous employers regarding transferring such qualified plans.

Step #3 – Investing – The benefit of investing in real estate with your IRA is that you get to enjoy tax-free profits.  First, find and negotiate the deal.  Sign the purchase and sales agreement. (At this stage you are able to act as agent for your IRA and sign the purchase and sales agreement (this isn’t the case later).  This is the only time you can sign documents on behalf of your IRA)

The IRA and you are two separate entities, and as such, the property needs to be titled in the name of your IRA and not you personally.

The correct title for most real estate IRA investments is:

Name of Trust Company custodian FBO (for the benefit of) Your Name IRA
Example: Equity Trust Company custodian FBO John Smith IRA

Once the purchase and sales agreement is signed then you must put down some earnest money .  You cannot use personal funds for the earnest money – all funds related to your purchase must come from your self-directed IRA.

You will need to fill out a form to remit the fund to the seller of the property.  This form tells the trust company the specifics on the property you’d like to buy, how much money you need, and where to send the funds.  Remember to include a copy of your purchase agreement.

It normally takes about 3 business days to process the form and remit funds.  Some company do allow expedited processing upon request.

At closing you’ll need to submit another investment form to the trust company for the remaining price of the property.  Closing documents are forwarded to the trust company by the title company or attorney.  The trust company will sign all documents on behalf of your IRA.  Funds are remitted to the title company are attorney and your IRA is the owner of a new property.  Final documents are sent back to the trust company for safekeeping.

Now that your IRA has purchased the property keep these two things in mind.  One, expenses that are associated with the property (maintenance, improvements, property taxes, condo association fees, general bills, etc.) must come from the IRA.  Two, profits (income and rent) must return to the IRA and are deposited back into your IRA account – tax free!


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