As confidence in the stock market continues to vary and people become more eager to take control of their investment strategies, real estate continues to grow as a popular alternative option. From fix-and-flip projects to rental properties, investors are continuing to take advantage of lucrative opportunities in the real estate market.

It’s a little-known fact that real estate may be held in IRA or 401(k) accounts in the same manner as stocks, mutual funds, and other more traditional assets. While personal capital may be limited, one’s retirement account may have larger sums of money available for new investment initiatives. And, yielded income will bear the retirement account’s tax advantage. Today, self-directed retirement providers that specialize in alternative assets are making it easier than ever to get started. 

From a real estate transaction standpoint, the process for initiating a retirement investment is similar to that of a personal one. You must locate a property, work with any applicable third parties to close the deal, and complete the necessary documentation. There are, however, several key differences to keep in mind. Among other considerations, anyone interested in this course of action should understand the following:

• If your IRA purchases investment property, it goes on title as the owner of the property. The tax-advantaged account must fund any expenses associated with the property. This includes earnest money, closing costs, maintenance expenses, or anything else inherent to the asset itself. In turn, any income generated by the asset must return to the account.

• Sweat equity is not allowed with an IRA or 401(k)-held property. If, for instance, your tenants refuse to mow the lawn, you are unable to visit the property to mow it yourself. Your retirement account would instead need to hire a third party lawn maintenance service to complete the task.

• If your retirement account does not have enough cash to purchase a property outright, it can obtain a non-recourse loan. Non-recourse means your personal accounts and assets may not be offered as collateral, and your retirement account is responsible for the re-payment of the loan. The property itself would be the only collateral involved in this model. As such, a higher degree of due diligence may be required in finding a non-recourse lender.

• You’re not the only person who must remain at arm’s length from the property. Among others, disqualified persons include your spouse, your parents, your children, or anyone else in your direct lineage. Non-lineal members of your family, such as your aunt, uncle, or sibling are non-disqualified persons and may therefore participate in your retirement investments. In the context of real estate, purchasing, contributing to, or living in the applicable property constitutes “participation”. These parameters may seem like added aggravation to the already complicated process of real estate investing, but don’t let them discourage you from considering property as a retirement asset. Technology has improved to include online bill payments, and 24-hour account monitoring. New Direction IRA specializes in education and open communication with our clients. Our goal is to make seemingly complicated alternative asset investments easier for you.

Jennifer Pfeifer is the Director of Business Development at New Direction IRA. Jennifer oversees front-end education of new clients and business partners for New Direction IRA. She teaches education classes for real estate professionals about self-directed IRA investing and works alongside the New Direction management team to support existing B2B partnerships and develop new on-boarding e ciencies. Jennifer has over nine years of experience in B2B relations and sales. She received her BA from the University of Arizona. Jennifer can be reached at: jpfeifer@ndira.com.

Like Our Blog? Please Share!