Using a Real Estate Self-Directed IRA to Make Real Estate Income

Creating real estate income is something many investors have come to view as a basic portfolio ingredient. Whether you are in the accumulation phase or retirement phase of your life, betting on the paltry bond market for income has become frustrating at best. Many investors do not want to expose their portfolios to the risk of a volatile stock market either, though. Thus, many turn to real estate as a source of retirement income and historical capital appreciation. What many investors do not understand is that by holding real estate in a self-directed IRA, investment returns can be sheltered under the tax-advantaged umbrella associated with retirement plans. A self-directed IRA removes one major real estate profit loss – taxes on capital gains.

However it also shelters rental income by allowing you to distribute funds on a more precise basis from year to year. Until the age of 70.5, you determine when and how much is distributed from your IRA. Here are a few questions to consider before purchasing rental property outright:

Am I able to manage the property myself and be “landlord”? 

It’s perfectly acceptable for an IRA holder to manage their own rental property however there are certain limitations that apply. You may act as “landlord” but only from a decision making capacity. Any repairs or improvements made to the property must be contracted to non-disqualified parties and paid for by the IRA in proportion to ownership.

Does my IRA have a large pool of available liquidity?

Many investors gravitate toward their IRAs as a way to tap a large amount of cash, which lends itself easily to cash purchases of real estate. If your IRA is highly illiquid, or if the liquid portion isn’t sufficient to purchase property outright, you may need to consider other strategies such as financing through a non-recourse loan or partnering your IRA funds with another entity.

Is my plan to rent or lease my real estate to the general public?

If you intend to live in a rental property and directly benefit from the space or lease out your real estate to a close relative, the transaction is considered prohibited and cannot be executed in an IRA. Any real estate income received under the qualified umbrella of an IRA must be from a disinterested third party.

Holding real estate in a self-directed IRA gives investors the ability to own all types of real estate. If all goes as planned, your ability to generate regular, long-term real estate income during retirement will be greatly enhanced by the substantial unrealized gains achieved through years of tax-deferred growth.

Not all IRA providers are created equal and the vast majority have no experience whatsoever with self-directed IRA real estate transactions. New Direction Trust Company encourages any investor considering a self-directed IRA to increase real estate income during retirement to weigh all options carefully. Our teams of IRA specialists are here to help and answer any questions you have at 877-742-1270 or