Income-Generating Real Estate in Your Self-Directed IRA

 |  Investing in Real Estate
Income-Generating Real Estate

By J.P. Dahdah, Founder & CEO of Vantage

Using your Self-Directed IRA to purchase income-generating real estate is a profitable strategy an ever-growing number of independent investors are using, especially given the current market conditions.

With your Self-Directed IRA, you can buy rental property as an investment just as you would buy stock market securities.

That means you can use your retirement savings to buy real estate without incurring early distribution taxes or penalties.  You can also realize the rental payments as tax-deferred income within your IRA; and in the case of Roth IRA funds, the rental income is tax-free growth. That’s right! Rental income does not show up on your tax return.

There’s also no Schedule E (i.e. – no need to report profit or loss from your rental property) because the rent is seen as a return on investment to the IRA, not income. The same is true with capital gains. Profits upon sale are seen as a return on investment to the IRA. All that is required is a one-time report of the value of the Self-Directed IRA at each year’s-end. The opportunity here is evident!

If you have enough funds in your Self-Directed IRA to buy income-generating real estate outright then you can do that.

But, what if you want to use your retirement funds in conjunction with a loan?

Using a non-recourse loan in conjunction with your Self-Directed IRA can create a powerful wealth-building tool. It means you can purchase larger income-generating property.  There are a limited number of banks that will provide non-recourse loans, and it’s worth your while to seek them out. Vantage can provide you with a resource list of these lenders.

With the right counsel and professional direction, you can open the door to many more income-generating investment opportunities for your Self-Directed IRA. Real estate investments you once thought were “out of reach” can now be part of your portfolio!

Here are some examples:

  1. If you decide to purchase a retirement home and you’re years away from retiring, use your Self-Directed IRA to purchase the property and rent it out in the meantime. The income your IRA receives in rent is tax deferred until you start to take withdrawals, so you can put it away until you do retire. When you’re ready, you simply direct your IRA to turn it over to you as a distribution at the current market value.
  2. If you decide to purchase a residential rental property for $150,000 and the rents are $1,500 per month; simply use your Self-Directed IRA to purchase the property. Once owned, deposit the rents into your IRA account and that’s it. You are saving for retirement!
  3. If you decide to purchase land for $50,000 and are land-banking for several years, use your Self-Directed IRA to purchase the lot or tract. Once sold, all profit is viewed as a return upon investment under the umbrella of the IRA provisions. You can purchase multiple properties this way, and the same is true. Everything is viewed as an asset of the IRA.

There are some restrictions for the examples above:

  • Until distribution, the house or property has to stay in the name of the IRA.
  • You can manage the property, but you can’t live in it or use it.
  • You may lease it to others, although some restrictions apply to certain family members.
  • Any income you receive from rent must be returned to the Self-Directed IRA account.
  • Any gains from a sale must be returned to the Self-Directed IRA account.

There are all sorts of other real estate strategies you can use as an income generator, from single family homes to multi-family complexes, retail, office space, industrial buildings, land, beach houses, vacation rentals, town homes/condos, and more.

So, if you want regular, reliable income through retirement; using real estate in your IRA could be a great option.

For more information on how you can discover your IRA investing alternatives, contact our team at (866) 459-4590 or Info@VantageIRAs.com.