How To Invest In Turnkey Real Estate With Your IRA Or 401(k)
You have an IRA or 401(k) because you plan to retire someday and you’d like to make sure that you can afford your retirement.
- You know expenses are going up, so your retirement could be quite costly
- You know that social security might not be around for you by the time you retire
- You know you need to save for retirement (but how do you do that since you’re trying to cover today’s bills?)
Here’s the alarming reality about retirement accounts: most people will not have enough money in their retirement account when they retire.
It used to be that people would retire at 65 and maybe only live a couple of years afterward, so they only needed a small amount to retire. But today, people are retiring at 65 and then living another 30 to 40 years. It’s nearly impossible to save up enough money during your 45 working years to pay for 30-40 retirement years.
And, with stock markets going crazy all the time, why are most Americans still trusting their own retirement funds to the stock market?
The answer is: most simply don’t know any better. Fortunately, there’s another way to invest that allows you to put aside more money than you thought possible without a lot of sacrifice today.
(Before we dive into the good stuff… remember, we are not financial advisors and by no means should this guide be meant to act as financial, tax, or legal advice. It’s for informational purposes only. Consult your own professional advisors before you make any financial choices like this.)
How To Hold Real Estate Inside Your IRA
Most people are aware of what an IRA is. Those tend to be used for stock market investments. But what only a savvy few people know is: with a Self-Directed IRA, you can hold real estate!
A Self-Directed IRA (SDIRA) is simple. It’s a retirement account that has the same tax benefits as a normal IRA… but, you have more flexibility in deciding what you want your IRA to be invested in.
You can invest in…
- Real estate (commercial, income generating rental property, rehabs, etc.)
- Promissory Notes secured by mortgages (i.e. – private lending)
- Tax lien certificates
- Limited partnerships
- Sub-C corporations
- Real estate options
- Some types of precious metals
- … and the normal investments like stocks that your normal IRA can invest in
Basically, this opens it up so you can buy investment real estate with your IRA… or be a private lender in real estate.
Are There Restrictions To Investing Inside An SDIRA?
Yes, there definitely are. There are restrictions on what you do with the real estate if you buy and hold… what types of precious metals… and oftentimes the “custodian” of the SDIRA has restrictions on what they think you can and should invest in.
A custodian? What/s that?
Self-Directed IRA Custodians
The US Government created the SDIRA loophole to help investors take more control over their investments while at the same time still getting the tax benefits. But… they don’t want people setting up a Self-Directed IRA and just doing whatever they want… that will invite in unethical practices that could hurt people.
So they put a “barrier” in place… and that’s what the custodian.
The custodian is usually the Self-Directed IRA company who you have your IRA with. They act as the “go between” when you’re going to make an investment. Many custodians have guidelines on what you can invest in, how long it will take for you to actually make your money work for you once they approve the investment… etc. Some custodians are more passive… and let you actually have a checkbook where you can write checks from your SD-IRA to make investments.
You should do your homework and find the custodian that’s right for you. Some have more expensive fees than others… and some give more flexibility than others.
If you’d like an introduction, we’d be happy introduce you to a SDIRA custodian that we trust. Just contact us and let us know that you’re looking for a self-directed IRA custodian recommendation and we’ll be happy to introduce you.
What To Ask A Self-Directed IRA Company Before You Work With Them
Before you sign on with a Self-Directed IRA company… ask them a few key questions.
- What are your fees? – Fees can vary wildly. Some charge an annual fee based on the value of the account, some charge an annual fee, some charge large setup fees, etc. Find out what works for you. But, the idea is that by being able to invest in real estate with your IRA… you’ll more than make up for the fees you’re paying with your higher returns.
- What’s the process for approving an investment? – Some companies can take up to 30 days+ to fund an investment after you send it in for approval. Some SD-IRA’s give you what’s called “true checkbook control”, where you actually get a checkbook where you can write checks from your IRA account… which gives you immediate access to the funds (i.e. – to close a deal quickly). Checkbook control usually is a tad more expensive to set up than an IRA account that requires all investments to go through the sometimes lengthy custodian approval process, but again… find out what’s best for you.
- Are there any restrictions on what I can invest in? I want to invest in real estate and make private loans. – Some SD-IRAs with larger more traditional companies like Schwab and SmithBarney put restrictions on what your account can invest in. Some don’t allow real estate… while others do. Just ask.
- Is my retirement account eligible to “roll over” into a SD-IRA? – Not all retirement accounts can be rolled over into a self-directed IRA. Most IRAs can be… and even some 401(k)s can be. Just ask your financial advisor and ask the representative at the SD-IRA company you’re working with.
- How long will it take for my account to be up and running and have funds available for investment? – Some people wait way too long to get this process rolling. If you know you want to use your IRA to invest in real estate… get the ball rolling on getting it rolled over into a SD-IRA account asap. Some companies may take weeks or even over a month to have your account setup complete and ready to invest. So, don’t wait until you’ve found a great real estate deal to get started… get started today so your funds are ready to invest when you need them.
Now You Have The Information, So Get Off The Sidelines And Getting Your Money Working For You!
Just imagine: acquiring a turnkey real estate investment property inside your IRA or 401(k)! It funds your retirement account month after month, freeing you up to choose whether or not to contribute or to spend your money on more pressing needs today.
If you feel a self-directed IRA may be a great way for you to invest a portion of your retirement in things you know (rather than the unpredictable stock market)… then dive in, take some time to educate yourself on the pros and cons of a Self-Directed IRA and reach out to us for an introduction.
If you have any questions on how you can work with us as an investor… just connect w/ us through our contact form or call us anytime at: (302) 572-9557. We offer discount investment properties in Dover and surrounding areas to investors like you who often buy them and keep them as rentals. Also, for those qualified investors who want to explore private lending… contact us and we’ll talk about how we work with private lenders as well.
Happy investing! We’re here as a resource for you so don’t hesitate to connect with us anytime.