Oh behave! Simple rules to follow when making a fortune with your IRA

Here are seven things you need to know about buying real estate with Roth IRA funds. Even with a built-up IRA, buying real estate is a good idea, but you must follow a few rules.

Remember that buying real estate with Roth IRAs requires you to have a self-directed account. Otherwise, you don’t have the option. Choose an experienced custodian and if you are not familiar with the market, get help from experienced investors. Soon, you’ll be on your way to a secure retirement before you know it!

1) With a standard, Roth, or rollover IRA, buying real estate may not provide you or your family members with an immediate benefit. Therefore, you cannot use the funds in the account to purchase property that you currently own. Nor can it be used to buy your parents, grandparents, children or grandchildren. If you wanted to buy something for your brother, on the other hand, that would be allowed.

two) Buying real estate with Roth IRA or other retirement account funds cannot be indirectly beneficial. For example, if you bought a beachfront property, you can’t stay there on vacation. If you purchased an office building, you would not be able to rent space in it. The same goes for the family members mentioned above.

3) When it comes to the standard IRA, Roth, or rollover, buying real estate presents a unique situation for titling purposes. You and your account are two separate legal entities. You are the account owner, but all deeds and mortgages must be in the name of the account, not you personally. It will read something like this; “IRA Investors, Company Custodian for the Benefit of John Smith IRA”.

4) Most investors recommend that buying real estate with Roth IRA funds be an all-cash deal, so you get the most return. But, the IRA can buy property even if the balance does not cover 100% of the transaction. You can associate with another person or obtain bank financing (see number 5).

In an example I am personally familiar with, a friend of mine on vacation saw what he thought would be a great investment property. Several acres of undeveloped waterfront land. The funds in his account were not sufficient to make the purchase, so he teamed up with several other family members to make the purchase. Each owned a percentage of the property, paid that same percentage in expenses related to the property, and eventually each would take that percentage of the profits.

5) If you choose bank financing for the purpose of rolling over your real estate purchase into an IRA, you will pay Unrelated Business Income Tax or UBIT (Unrelated Business Income Tax). Other investment returns are not subject to tax, only those that are “debt financing.” You can only take out a non-recourse loan, which means the property can only be repossessed if you default on the loan. The IRA cannot be used as collateral.

6) When you buy real estate with the Roth IRA or other account funds, you must remember that all related expenses must come out of the fund and all earnings or income must be returned to the account. For example, if your account owns a rental property, repairs and general maintenance of the property must come from the account. All rental income also goes to the account.

Joe Fazchas is a real estate investor as well as the owner and founder of www.iLOCAdvantage.com, a company that partners with private individuals and lending corporations across the country for the sole purpose of financing and/or rehabilitating investment properties. . All of which is done using a proven turnkey Real Estate system… The ILOC IRA.