Posts Tagged ‘Real Estate’

Rules and Limitations for Owning Real Estate Through an IRA

Monday, April 9th, 2018

real estate and IRA long

Buying real estate through your IRA is a lucrative and competitive business. It can substantially increase the return on your IRA’s investment, and make for a big, cushiony retirement nest egg. One of the biggest reasons that more people don’t take advantage of owning a real estate IRA is all the rules and confusion that comes along with it. It can be a meticulous task, but well worth it.

Self-Directed Real Estate IRA

Although IRS rules permit IRA funds to be invested in real estate, IRS rules do not require an IRA trustee to offer real estate as an investment option. Most trustees who offer traditional IRA investments, such as depository banks, do not allow an IRA owner to invest in real estate because of the extra administrative burden of real estate management. As a result, if you want to invest your IRA funds in real estate, you will most likely have to convert your traditional IRA to a self-directed IRA, which is an IRA that requires you to decide what investments to make, such as real estate.

Prohibited Transactions

IRS rules require the IRA-owned real estate to be for investment purposes only. This requirement places several prohibitions on how the real estate can be purchased and used, the key to understanding the prohibitions is the term “disqualified persons”. This term is used in the IRS rules regarding IRA-owned real estate to refer to the IRA owner and related persons–that is, the IRA owner and spouse, ancestors (mother, father, grandparents) and descendants (children, grandchildren, and their spouses). The term disqualified person also includes the IRAs investment advisers, including a trustee of the IRA funds, and any business in which a disqualified person has a 50 percent or greater interest. IRS rules prohibit the use of IRA funds to purchase real estate from a disqualified person, the rules also prohibit a disqualified person from using any real estate IRA purchased with IRA funds, either as a home or business. These rules even preclude you from purchasing a vacation home that is only partly for personal use and otherwise rented to others.

Tax Consequences

If you violate the IRS rules regarding prohibited transactions, the IRS will consider the IRA funds used in the transaction as a distribution of your IRA. You will be taxed on the funds from the first year in which the transaction occurred, with penalties and interest included. Depending on your age, you may also incur an additional penalty for taking an early distribution.

The Rules of Buying Property with your Real Estate IRA

Monday, February 12th, 2018

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.

Choosing The Right Asset Type for your First Investment

Tuesday, January 2nd, 2018

Investing can seem like a double-edged sword. Most people have heard about the importance of it, yet the options and risks sound impossibly intimidating. Too often, confusion and fear lead to doing nothing, because doing nothing at least feels safe from loss. However, as Money Under 30 explains, the apparent safety of doing nothing is deceptive because, once the power of time and compounding interest are considered, much more money is lost by not investing than by taking on investment risk. Once it’s accepted that loss cannot be avoided by staying on the sidelines, it becomes clearer that the safer choice is to choose the best baby steps forward.

Asset allocation

One of the keys to sound investing is to have the proper asset allocation. Among other things, this means that novice investors should not jump right into purchasing individual stocks when they almost certainly do not have the information they need to make good buying choices. Mutual funds consist of multiple securities (primarily stocks and bonds), and they are preferable due to the risks being diffused by diversification. Also, expenses are reduced by paying just one commission for each fund purchase.

Make it automatic

The other key to sound investing is to make it automatic. This prevents getting sidetracked by the emotions of the news cycle. Among the many options for doing this is an app called Acorns. Acorns allows investors to choose one of five diversified portfolios according to their goals and risk tolerance. Accounts can be funded with a one-time lump sum or regular recurring withdrawals from a checking account. A unique feature of Acorns is that it allows users to link to a credit or debit card, and it then rounds up purchases. Once the difference exceeds $5, it applies the amount to the chosen investment.

Tangible investing

Real estate is a popular investment that has value both for the long-term and for immediate cash flow. Of course, many people do not have the massive capital often required to buy their own properties outright. Fortunately, modern innovation has provided more flexible options. With crowdfunding, it is possible to buy shares of real estate like you would buy shares of mutual funds. RealtyShares, for example, allows investments of as little as $5,000 in various selections of residential and commercial real estate.

Individual retirement accounts

Selecting the right investment account is as important as choosing the right assets and portfolios to go in it. Certain retirement accounts provide tax benefits as long as established rules are followed. A traditional IRA allows savers to deduct the amount they invest from their taxable income. Taxes are paid when distributions are taken in retirement. In contrast, money invested in a Roth IRA is after-tax money, but the distributions are tax-free.

Money in these accounts is typically invested in fund options offered by brokers. However, a self-directed IRA allows the flexibility to choose from a broader range of investments such as real estate and lending notes. Assets in these accounts must still be held by a custodian or trustee.

Real Estate Markets That are Booming in 2016

Monday, March 28th, 2016

real estate

Investing in real estate is much like making strategic investments in the stock market: Markets must be chosen carefully in order to maximize the long-term value of this investment, taking advantage of short-term and long-term trends. In real estate, there are decidedly some “winners” and some “losers” among major cities and metropolitan areas across the United States. Before investing in real estate, it’s important to understand the markets that are ripe for the biggest growth in home values over the long-term, since this can result in a significant accrual of wealth for smart investors. While the economic recovery’s rising tide continues to lift all boats, these markets are rising quite a bit faster than average and represent the best choice for today’s investors.

1. Austin, TX

Austin TX

Austin has developed a reputation for being “weird,” but there’s more to this city than its cultural diversity. In fact, Texas’ capital city has quite a bit going for it. As the political center of one of the country’s most populous states, Austin has ample opportunities for public servants, lobbyists, and lawyers. As a tech and entertainment hub, Austin also shines in terms of its white-collar job growth. As the home of the University of Texas at Austin, the city is also a major draw for the “eds and meds” that will drive the 21st century economy.

What does this mean for real estate investors? A growing population, rising home values, and long-term growth projections that make for a sound investment. According to industry experts, the Texas city ranks first nationally for investment, second for home building, and fourth overall for real estate investment.

2. Denver, CO

Denver CO

Colorado has become the center of a new progressive political movement as well as high-tech and “green” jobs. The state, notorious most recently in the national press for legalizing marijuana, also has some of the best regulations on the books for tech startups and green businesses. As these two sectors continue to grow their overall representation in the American economy, Colorado’s largest city of Denver continues to grow both its resident population and its home prices. The city was named the second-best investment market to watch for 2016, and the most recent Case-Shiller Index report notes that local home prices are expected to increase by at least percent during the upcoming year. Homes in Denver also sell much faster than the national average, according to, making it an excellent market for sellers and investors alike.

3. Miami, FL

Miami FL

Miami continues to grow and evolve as a major gateway to the Caribbean and South America, giving it a reputation as an international center of finance and investment. The city, which is also a hub of vacation and retirement activity for Americans from all corners of North America, is also an excellent choice for buyers and investors looking to maximize their return on a mortgage or cash payment. The city’s homes are expected to appreciate in value by at least 18.7 percent through the end of 2016. Given Miami’s excellent, beachfront location and its ability to draw top talent from the United States and abroad, this diverse market is a perfect fit for buyers and investors who want a quick, almost guaranteed return on their initial investment.

4. San Jose, CA

San Jose CA

Some of California’s real estate markets have been through tough times in recent years, but that’s not the case in San Jose. This growing technology capital, located just a short distance from San Francisco, has recently been identified for high-tech campuses built by Apple and others. The city continues to grow its overall population, led by software and hardware engineers who are setting foot outside of the more traditional San Francisco tech scene. The city’s homes are expected to appreciate significantly in the year ahead, as well as over the long-term, as companies like Facebook, Apple, Tesla, and Google grow their office space and expand into entirely new communities close to their San Francisco headquarters.

Real estate markets are on the rebound, but some are faring far better than others. In states like California, Texas, and Florida, cities are growing because of their proximity to high-tech jobs, excellent weather, and recreational opportunities that maximize the value of each property bought and sold. These markets are the one to watch as 2016 gets underway and real estate investment season begins anew.