Self-Directed IRAs May be Growing in Use

In an article this week over at nuwireinvestor.com, the future growth of self-directed real estate investment is discussed. In a standard IRA or Roth, you aren’t allowed to do a lot to direct your investments. You may be stuck with decisions made for you, or you’re restricted to investing only in stocks, bonds or mutual funds. Depending on the Custodian, you may have a little latitude, but you definitely won’t be buying and holding rental properties.
In a true self-directed IRA, you’re allowed to invest in other asset classes, including real estate. You’ll need to look for a Custodian with the experience and desire to administer investments as complex as rental real estate. The rules are too long to talk about here in detail, but general real estate investment bullet points include:
• All properties must be purchased into the account with money in the account.
• Personally owned properties can’t be transferred into the account.
• All rents must be received directly into the account.
• All expenses, such as taxes, repairs, management, etc. must be paid from the account.
• Generally, there should be NO mixing of personal assets or money; everything must go through the account under the supervision of the Custodian.
That’s the short list, but self-directed IRA accounts are growing in popularity primarily to allow investment in real estate. There’s a growing dissatisfaction with stocks and bonds and tiny savings returns. There is also a LOT of media coverage and many “reality” TV shows that are popularizing real estate investment. As these accounts become more popular for real estate investing, there will be more specialty Custodian companies opening up. The key to getting started will be to carefully select a company with the experience and financial stability to stay around and not get your nest egg into trouble.
Close communication with the Custodian is important, as they must release purchase funds. You don’t want to get locked into a contract with earnest money and end up losing it because of some problem with funds release. Real estate investment can be an excellent retirement vehicle, and it’s even better if you can do it in an income tax deferred account. Check out your options to transfer an existing retirement account, as you may find that you have the funds available to get into some nice rental properties.