Real estate is one of the most sought-after and lucrative hard asset types that investors love. It’s popular because it’s not just single-family homes, but commercial real estate, farmland, business parks, apartment complexes, and more.
What most Americans don’t know is that you’re allowed to invest in these types of real estate with your self-directed IRA, and any gains made off of your investments go back into your retirement account.
As with any investment, there are rules that you have to follow to make sure that your IRA is compliant with IRS laws, so let’s go over a few rules.
Your personal use
When real estate is purchased as an investment property, it almost seems like second nature to want to inhabit that property. But when your IRA has purchased the home, your IRA is the technical owner, not you, unfortunately. Neither you or your family are allowed to use the property for personal use, either as rental tenants, overnight guests, or anything in between.
This rule seems like it should be fairly self-explanatory, and seems easy to avoid, but if you’re found violating these rules, your IRA could be disqualified. Self-dealing is when the IRA owner uses their IRA for personal gain or promotes their own self-interest. Say if you’re looking for a single-family home to buy with your real estate IRA, and your own home is for sale, so you think about buying your home with your IRA. That’s self-dealing. Because you directly benefit from your IRA buying your home, it’s not allowed.
Limited Liability Company
A Limited Liability Company is better known as an LLC, and an LLC paired with your real estate IRA isn’t a rule, but a perk. By opening an LLC, you will then have checkbook control, a physical checkbook that allows you to pay fees, services, any costs affiliated with the property your IRA owns.