Not only is fall definitely in the air, but the sights and sounds of Halloween are haunting us daily. Whether we are grocery shopping, walking the kids to school, or even going to the gym, we see Jack-O-Lanterns, black cats and the promise of clever costumes on the way! But if you are house hunting this time of year, don't get spooked by the subtle changes in our Colorado real estate market. Yes, things tend to slow down this time of year as homeowners settle in for the winter all wrapped up like mummies, but that may be a good time to be active in the market. There are still plenty of options on the market for the first time or repeat home buyer. When I refer to options, I don't just mean types of homes for sale. I also am referring to various financing options, such as FHA 203K loans for fixer uppers, as well as Self Directed IRAs. Don't be spooked! Yes, you can use your 401K to buy property - legally. So what do I mean by real estate investing using a Self Directed IRA? Before diving into how you can use an IRA to invest in real estate, let's start with what this concept means.
The term "IRA" stands for Individual Retirement Account, and can be simply described as a savings account that allows you save for retirement in a tax-advantaged way (tax-free growth/tax-deferred basis). Typically, there are three main types of IRAs – Traditional, Roth, and Rollover. A Self-Directed IRA is a form of IRA whereby the account owner is allowed to decide on what to invest, as opposed to traditional forms of IRA where investment decisions are made by financial institutions.
In order to invest using a Self-Directed IRA account, an owner must first hire the services of a qualified trustee or custodian. Trustees maintain records, file IRS reports, familiarize owners with the rules and regulations of operating IRA, and issue client statements. Although a Self-Directed IRA account offers more diversification potential than IRAs, owners should note that the kind of assets provided varies from custodian to custodian. Another important item owners must know about investing in real estate with a Self-Directed IRA, is that custodians are neutral parties and are not under any obligation to give you advice on which property to invest. What this implies is that you need to know your options before investing in real estate. It is essential that you seek advice from an experienced real estate agent, as well, as an accountant before investing.
I have used a Self-Directed IRA to invest in real estate and it was a fairly straight-forward process. At LRA, we have partnered with New Direction IRA, to help educate our clients about the process. I often wonder why folks are not doing this more often! I would be happy to share my experiences with you. So, even though this is the time of year to be spooked, using a Self-Directed IRA does not have to be a scary at all! We invite you to read more here.