IRA

[Paula Schafer]

I'm looking to use my IRA to invest in real estate. I'm looking for any advise from anyone who is doing this and which company are you using as the custodian. Thank you.

[Sandra Reese]

Hi Paula, I have spent 10 years working for custodians that will hold real estate as an asset in an IRA. I have educated many investors on the rules and regulations surrounding real estate investing in IRAs. I am currently an independent consultant and am happy to give you some information. Here are a couple of key points:

1. Real estate purchased by your IRA must be for investment purposes only, meaning you (or a direct relative) cannot use the property your IRA has purchased. Also, you cannot use IRA funds to purchase a property you currently own or a any direct relative may own (parents, spouse or your children and their spouses).

2.  There are a number of different ways to structure the investment depending on how much you have to invest.  I also suggest 'doing the math' first to determine initial cost of ownership and ongoing expenses related to the investment.

3. Any expense related to the property must be paid from IRA funds; also any income generated must go directly back to the IRA.

4.  Remember the Government created IRAs as an additional way to save for retirement therefore there are rules that deter the account owner from using those funds prior to retirement.

5. Internal Revenue Code states that an IRA must have a 'custodian' to report annually to the IRS on asset values in these accounts. The "Code" also describes who is able to act as a custodian and it is usually a bank or a company that is regulated by a state banking commission. There are many, many companies on the Internet who promote their services for self-directed investors: some are regulated custodians; others are administrators who must identify their custodian; yet others are "facilitators" helping investors set up certain structures prior to making a self-directed investment.

6. The concept of 'self-directed IRAs' and 'self-directed investing' really means that the IRA account owner is totally responsible for performing due diligence on the investment and service providers.

7. With that being said, I just want to reiterate that I am attempting only to educate you on the highlights of IRA investing in real estate. I am not promoting any investment strategy or products; not discussing any performance and giving no tax, legal or investment advice. I will be happy to provide references to various Government publications and try to answer any other questions you may have.

Hope this was helpful.