Investing in Real Estate with an Inherited IRA

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Depending on the account structure and the beneficiary’s goals for the account, there are many different strategies available to invest in exciting alternative assets that lie outside of the stock market, including rental properties. Using an Inherited IRA to invest in real estate provides the beneficiary the opportunity to generate income from rent, appreciation, and more.

Inherited IRA owners can invest in commercial property, residential property, raw land, agriculture, and even mineral rights. An Inherited IRA can also participate in real estate through fix-and-flip projects, flip-and-holds, and wholesaling.

To kick off the process of IRA real estate investing, the beneficiary will need to hold their inherited IRA with a self-directed IRA custodian who allows retirement investing in assets outside of wall street. Once the self-directed Inherited IRA has been opened, if the account has the funds, it can buy rental property outright, making the IRA the title holder.

If the IRA does not have the funds to finance the full purchase price of a rental property, the account can partner with another person, company/entity, or another IRA account. This means the account can partner with any non-disqualified persons including yourself, your family, your friends, other IRA accounts, or another entrepreneur. You can be a tenant in common with another investor, or you can partner your IRA with other investors via an LLC. There are many purchase structures available to suit the beneficiary’s goals for their real estate Inherited IRA.

In a similar vein, inherited IRA owners can take out a non-recourse loan from a lender to help cover the purchase price of a rental property. However, neither you nor a disqualified person can guarantee a loan for an IRA property, as this constitutes “self-dealing” and is prohibited by the IRS. Debt-leveraged profits may be subject to UBIT, but there can certainly still be benefits to using a loan to buy a potentially more lucrative property than the IRA could have purchased with the account funds alone.

In terms of distribution strategies for real estate, the Inherited IRAs have several different options. To learn about these strategies and the unique distribution rules that apply to Inherited IRAs, contact us at 877-742-1270 or to learn more about real estate inside an Inherited IRA!