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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4224
Experience:  Providing Financial, Tax & Business advice since 1986
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Dear Finance Professional, I have about 120K in my IRA account

Customer Question

Dear Finance Professional,

I have about 120K in my IRA account with Fidelity. Today's distressed real estate market offers many singel family REOs for about $120K. If IRS regulations allow, I would like to use my IRA money to buy an REO and rent it out. That way, I will get monthly rental income and real estate appreciation in long term.

Do you know, is it possible to use IRA account money to invest into a rental property?

I own 3 other positive rental properties but they are through my regular money. I just need to know, how to use my IRA money to buy a rental home, if IRa allows.
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi, I can help with this ....yes you can by real estate INSIDE the IRA

NPVAdvisor :

You have to be VERY careful because with IRAs there what the DOL (Dept of Labor ) calls prohibited transactions and there are also disqualified persons

NPVAdvisor :

I would recommend first doing a transfer to n IRA custodian that has expertise in Real Estate Investments inside IRAs

NPVAdvisor :

First, lets think through the things that are typically done with real estate investments that the IRA doesn't allow ... The business of running the IRA has to be done COMPLETELY insider the IRA, so ..... no deduction for expenses like property tax

NPVAdvisor :

Sell the Property (THAT's GREAT, NO TAX)

NPVAdvisor :

But take the money out of the IRA and that’s added to your income for the year…plus a 10% penalty on those withdrawn dollars, if you under age 59 and ½

NPVAdvisor :


And you can’t use any depreciation for any equipment or anything else that might be in that IRA

NPVAdvisor :

So you have to remember that everything has top be done, essentially, inside the shell of the IRA,

Customer:

thanks. Reading your response. will be back in aminute

NPVAdvisor :

SURE you can rent the property ... but the dollars need to stay inside not to be taxed and penalized AND there has to be enough cash in there to run the business ...... remember that you can only contribute 5000 per year to the IRA (However, you can roll other IRA or 401(k) dollars into the IRA, but the contributions are limited to the yearly IRA contribution limits)

Customer:

Great response. Thanks for sharing the things within IRA shell (ir no deductions, etc.. I am cool with all these.

Customer:

Do you have any pointers on where and how to find "IRA custodian that has expertise in Real Estate Investments inside IRAs"?

NPVAdvisor :

 


 


Don’t get me wrong,… if you do it right you may be able to FAR surpass the rate of return you would get using stocks bonds or CDs and MMs


 

NPVAdvisor :

THe best one I know of (I have no connection, I have clients that have used, is Pensco. thy know all of the rules and have attorneys that know all the rules

NPVAdvisor :

http://www.pensco.com/learn/get-started/why-you-should-choose-pensco4

NPVAdvisor :

Woops hit 4 bu mistake ... should be just

NPVAdvisor :

http://www.pensco.com/learn/get-started/why-you-should-choose-pensco

NPVAdvisor :

Now, we haven't talked about disqualified persons and prohibited transactions...this is where you can really mess up (although, again, a good self-directed custodian knows this stuff) but ...

Customer:

Perfect, yes, I fully agree on returns on REOs. It is simply the best time of our life. I baught an REO for 200K 3 years back, 50K down, rest loan. It gives me $600 PM cash flow, and now worth 300K. thats $100 appreciation and 12% annual return.

NPVAdvisor :

Excellent

NPVAdvisor :

Going forward from now, with the rental marked growing this could be an excellent idea

Customer:

100% percentt. Simply amazing. Shared this with many of my friends. They all are enjoyings ame benifts

NPVAdvisor :

yep, I have an office builling MUST, however, give you this (for doing it inside the IRA)

Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4224
Experience: Providing Financial, Tax & Business advice since 1986
Lane and 2 other Finance Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Kumar, you left before I listed the prohibited transaction stuff:

VERY Important

See this:


Prohibited transactions:
DOL prescribes several transactions that can cause the IRA to become disqualified, therefore all taxable (and penalize-able, if you will) at that point in time.
Further, these transactions are the inappropriate actions by you OR any DISQUALIFIED PEFRSON

Disqualified persons are …

Member of your family (spouse, ancestor, lineal descendant and any spouse of a lineal descendant)

Any party that exercises discretionary authority or control in managing your IRA or its assets

Any party that charges to provide investment advice on the IRA (or has authority or resp. to charge)

Any party administering your IRA (Bank, Trust Company, Brokerage Firm)
Any entity in which you own at least 50% stake



And Prohibited transactions, which cause disqualification of the IRA .... which means ALL TAXABLE ... ALL PENALIZED if you're under 59 and 1/2




Prohibited transactions:
1. Borrowing Money from your IRA plan
2. Selling Property to your IRA plan
3. Paying unreasonable compensation for Management of your Plan
4. Using the IRA as a security for a loan
5. Buying property for personal use



Hope this helps

Lane

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Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4224
Experience: Providing Financial, Tax & Business advice since 1986
Lane and 2 other Finance Specialists are ready to help you

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