How to Invest in Real Estate Using Your IRA

Real estate investors can take advantage of their tax-advantaged accounts, or IRA, to invest in real estate property without incurring any taxes on the principal earned throughout the tenure. This investment option has been used by many to put their hard-earned savings to work. There are restrictions however, and they must be observed in order for you to plunge into the real estate market.

Your IRA has to be independent of any brokerage for you to be eligible. Most brokerage’s won’t allow you to invest in real estate holdings anyways. Next, you’re going to need to file it through a custodian – which does charge a fee. A custodian’s duty is to manage the transactions, deal with the paperwork, and also ensure that you are not violating any strict rules. Be warned though, a custodian is not a financial advisor and will most likely not provide you with any advice on how to structure your holdings.

The property that you invest in is not to be used as a vacation home, a second home, or an office for a business. The guidelines stress that real estate properties are to be solely used for investment purposes. Also, note that you cannot deal with “disqualified” people as it is considered a self-dealing transaction. Persons that are considered “disqualified” include: your parents, grandparents, spouse, children, IRA service, providers, and one that owns more than 50% of the property.

With several rules and regulations turning investors off of using their IRA as an investing asset, many aren’t taking advantage of the tax-free potential of earned income.

Bio: Kuba Jewgieniew is the head of Realty ONE Group, a full-service real estate brokerage firm with nearly 8,000 associates headquartered in Irvine, California.