IRAs and Real Estate Investing
If you are thinking about investing in real estate—mortgage notes, raw land, condos, houses, or commercial property—because housing prices are down, you can add to your portfolio by using a self-directed IRA. For the widest range of options, you will need an independent administrator to act as your custodian or trustee, rather than a brokerage, insurance company, or bank. As you proceed, be sure to keep the tax consequences of any action you take in mind.
What you can do before you invest
If you have a basic IRA, you can begin by converting to a Roth and using those funds for tax-free growth by investing in real estate, if you feel that the market will bounce back in the long run. Roth IRAs do not include Required Minimum Distributions (RMDs), and the illiquidity of your investment should be kept in mind as well. You may also find that you prefer the greater diversification and liquidity that a Real Estate Investment Trust (REIT) provides is more appealing and comprehensive. It is best to use a separate IRA for every non-traditional investment you make in order to avoid any complications related to the detailed Internal Revenue Service (IRS) regulations that may apply.
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