Buying Rental Property Using Your IRA

Buying Rental Property Using Your IRA
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Did you know you can use your IRA to purchase real estate? For many people across the United States, it’s one of the most unnoticed ways to invest in rental property.

Because it’s so overlooked, we are going to look at buying rental property using your IRA. With these tips, you’ll be well on your way to investment success.

You Must Use a Self-Directed IRA

First, you can’t use just any IRA to purchase real estate. It must be a self-directed IRA.

This type of IRA allows you to invest in any type of legal investment including real estate, start-ups, private equity funds, cryptocurrency, and more. Most people do use the self-directed IRA to purchase rental property, though.

This IRA allows you much more control over your retirement funds.

With the self-directed IRA, it’s important to note that you don’t own the real estate, your IRA does.

When you finalize the contract to buy your rental property, it must be in the name of your IRA. Your IRA will also be the name on the deed to the property. You cannot use your own funds.

There are Specific Types of Real Estate an IRA Can Own

With the self-directed IRA, you can buy the following:

  • Single family homes
  • Vacation rental properties
  • Land
  • Condos
  • Commercial property
  • Flips
  • Multiunit homes
  • Apartment buildings

You cannot, however, purchase real estate for your personal use with the self-directed IRA. It must be used to purchase a rental property.

Bottom line – your IRA can own any real estate you purchase for an investment.

Self-Directed IRAs Have Tax Advantages

You’ll find you have some nice tax advantages with your self-directed IRA.

First, IRAs are tax-deferred accounts. This means you don’t pay tax on the funds until you withdraw them for your retirement. When you do decide to retire, you’ll most likely find yourself in a lower tax bracket, so you’ll pay less taxes.

In addition, when you buy rental property with the self-directed IRA your investment grows on a tax-deferred basis. You’ll also note that your compound interest continues to grow.

Finally, you don’t have to pay dividend taxes or capital gains with your self-directed IRA.

There are Some Limitations

Yes, you can use your IRA when buying rental property, but there are some rules.

Let’s uncover them:

  • You incur penalties if you withdraw from your IRA before you turn 59 ½.
  • You can’t use the property. Your family members can’t use it either.
  • If you need to make repairs, you must hire a third party as you can’t make the repairs yourself.
  • You must pay all of the expenses for the rental property through your IRA. You may not pay for them.
  • You can’t invest in real estate with the intention that it would benefit a family member or yourself.

You must use it only for investment purposes and nothing else.

Gains Return to the IRA

The other thing to note about buying rental property with your IRA is that when you have rental income or you sell the property for a profit, the money goes right back into your IRA.

Remember, too, that you pay no tax when your self-directed IRA makes money. When you sell the property, it is also not taxable.

To Conclude

Buying a rental property using your IRA is a good strategy for many investors.

First, you may know that rental property provides you with substantial long-term returns.

In addition, real estate is generally resistant to recessions. People need a place to live even in tough times. Stocks are constantly changing, and your retirement savings can fluctuate. But property values usually don’t show drastic changes, and you’ll find rental properties are simply good for your retirement.

By using your IRA to buy real estate, you end up with predictable returns that are good for your future.

To talk to an IRA advisor about your situation visit

At PMI East Lyme Property Management, we are your full-service residential and commercial property management company. We are here to protect your investments every day and make investing in property easier.

Photo by Austin Distel on Unsplash