Investing in Real Estate using a Self-Directed IRA
A self-directed IRA is an individual retirement account in which you, the passive investor, maintain control over and the responsibility for the investments in your IRA. Typical IRAs offered through your financial advisor limit your investment options to stocks, bonds, and mutual funds. With a self-directed IRA you can invest into a wide range of investment vehicles, such as real estate.
A self-directed IRA involves the investor placing his IRA money with a custodian who is responsible only for executing the investments that the passive investor requests. The custodian does not act as a financial advisor and they will not source or suggest specific investments - this is entirely up to you!
The account owner of the self-directed IRA is fully responsible for decisions related to how and where to invest IRA money. Your IRA custodian is passive and has no authority in taking any action with regard to the investment decisions you make. Your custodian is not a broker, or an investment advisor. They do not sell investment products or provide due diligence on potential investments.
IRA custodians execute investment directions from the IRA owner - you! An IRA custodian will perform the many custodial and administrative tasks that are necessary to preserve the tax-deferred status of an IRA and will administer the account and provide custody over the assets.
With a self-directed IRA, passive investors can place their retirement capital directly into real estate opportunities - such investments allow for the potential of larger profits.
Real estate investments, like all others, carry risk. No asset class or investment vehicle can guarantee the passive investor a certain outcome. When you manage a self-directed IRA, you are fully responsible for vetting any investment you make, and for learning about the tax or regulatory implications of your investment. You cannot cast any blame upon your custodian or anyone else.
When funding a passive real estate investment using a self-directed IRA, you cannot take advantage of the investments depreciation losses. You also cannot take possession of the passive investment cash flow distributions or profit split (at the time of disposition), as all funds you invest using IRA money, and distributions received from those investments, must flow directly from and then back into your self-directed IRA.
To learn more about investing passively into real estate using a self-directed IRA, or for a recommended list of self-directed IRA custodians, please make contact.
