Real Estate Investing With Your IRA

March 14, 2012 | By Steven DiGregorio

While home prices still may not have hit bottom nationally, demand for distressed properties on at the lower end of the market is starting to grow. Large scale investors like hedge funds and private equity firms are rushing in with cash on hand, and that gives them the upper hand in competition for these properties.

So how does an individual investor, without extra cash lying around, get in? Retirement funds.

It may sound risky, but with strong rental demand and relatively little supply of single-family homes, it could be less risky than the stock market. That’s because your gains are largely coming from rental income not home appreciation, which is why this works so well in today’s market.

The catch is that you have to do it through what’s known as a “Self-Directed IRA”. Not a lot of firms offer these structures, but a few names that do are: Guidant Financial, Sterling Trust, IRA Resources and PENSCO. The firms act as custodian of your Self-Directed IRA, holding the property and dealing with all associated expenses.

Section 408 of the Internal Revenue Code permits individuals to use a self-directed IRA to purchase real estate investments such as commercial property, condominiums, residential property, international real estate, mortgages, trust deeds, real estate contracts, private placements, limited partnerships, limited liability company’s (LLC’s), and many other types of investments with retirement funds held in many common forms of IRA’s.

“It’s really an account that provides greater flexibility than what a third party administered 401K, for example, would provide,” says Kelly Rodriques, CEO of PENSCO.  That’s in part because real estate has become a valued investment opportunity area, given the recent downturns.

Imagine purchasing a commercial property or multi-family housing unit and receiving rental income in your IRA for thousands of dollars a month.

This type of IRA does carry restrictions.

  • The property must be used purely as an investment, with all the income going directly back into the IRA.
  • The owner may not occupy the home or even use it as a vacation property.
  • The owner can manage the property, doing maintenance and supervising the renting, or can hire a rental management company which would be paid for out of the IRA.

It is also possible to get a mortgage through the IRA, that is referred to as a non-recourse loan.  “It’s a loan that can only seek the property, the collateral, as its sole recovery, if the property goes into default, so you as an individual can’t sign up to guarantee the loan,” says Rodriques. The IRA is not just purchasing the property, but it is responsible for liabilities and payments.

All this may sound complicated, but for some it may well be worth the extra time and energy. With a rising number of foreclosed properties coming to the market this spring, and banks far more willing to do short sales on troubled loans, opportunities are everywhere.

The information herein contained does not constitute tax or legal advice. Any decisions or actions based on information contained herein should not be made without first consulting a CPA or attorney.

For more information contact Compass Asset Management Group, LLC at 845.563.0537 or

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.

Tags: 401(k), investment strategies, investments, IRA, property, real estate, Real Estate Investing, rental income, retirement, retirement plan, Retirement Planning, rollover IRA, Section 408 IRS, Self Directed IRA, Self-Directed

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STEVEN M DIGREGORIO is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.
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