IRA investment guidelines are extremely important to understand if you want to include real estate in your IRA. While the government does not disallow the purchase of property with individual retirement accounts, there are rules that must be followed otherwise it can potentially lead to the cancellation of your IRA.
Section 408 of the IRS code allows individuals to purchase specific types of properties with IRA funds, buying or selling to an IRA is a definitely not allowed. When searching for property for your real estate investments, it is best to find a real estate IRA, or a business that allows individuals to use their IRA funds for these non-traditional transactions. If you have no worries with making all decisions to do with your account and looking to spend less money, a self-directed real estate IRA gives you complete control over your retirement account investments.
IRA real estate investment guidelines state that the individual cannot purchase the property themselves, they have to direct the custodian to purchase the property and the deed is held in trust by the custodian for the IRA account. The custodian must also hire a third party to manage the property if any work needs to be done and all proceeds and expenses are handled through the IRA account. If the individual mixes personal and IRA funds for the property, who does any of the work themselves for the property than this is considered a prohibited transaction that can lead to fines or the voiding of the IRA by the government.
Purchasing real estate is often an expensive affair, and usually there aren't enough liquid assets in the IRA to purchase income producing property. It is prohibited for an individual to loan money to or purchase money from an IRA and the funds in an IRA can't be used as collateral for a loan. In order to leverage an IRA's assets to purchase property, a non-recourse loan is an investor's only option. This loan is taken out by the IRA via the custodian with the property as collateral and the lender can't pursue the individual if the loan goes into default.
IRA real estate investment guidelines are complicated but can be followed. Finding a real estate IRA company will allow you access to the experience and resources you need to make wise decisions when adding real estate to your investment portfolio.
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