I discovered a while back, that I could make real estate investments through my IRA where all of my investment money was situated. The real estate market was (and still is) ripe for a killing if you have the money available. I ended up buying a repossessed four bedroom, two bath house from a bank for $36,000. I paid for it as well as the rehab costs from my IRA. It’s now generating $900 a month rent (less property tax, insurance and maintenance) that goes back into the IRA tax deferred. I’ll probably sell the house when the market comes back. The gain will go back to the IRA still tax deferred.
Around the same time, I began to look at retirement properties in the southern Appalachian mountains. I found an awesome two acre property on a ridge of the Blue Ridge Mountains in North Georgia. This was the ideal location for my log cabin. Because it was still a buyers market, it was also the ideal time to buy it. Due to personal considerations, I needed to tap my IRA to make the purchase. I could have withdrawn money but because I was under 59 ½, it would have been subject to a 10% penalty as well as become currently taxable as income.
I called up my IRA company and was advised that I could buy land as an investment. Given the discounted price I was paying, it really could be considered an investment. I ended up purchasing the land through the IRA. Property taxes and any other ongoing expenses are also paid by the IRA as they come due. When it comes time to build my log cabin on the land, I can take total control of the land by distributing to myself.
To invest in real estate, you need to set up a self directed IRA. You can roll over funds from a regular IRA tax free. There are a number of companies that specialize in self directed IRAs and real estate investing including Guidant Financial and the Entrust Group. If the value of the real estate is expected to appreciate, you can also utilize a self directed Roth IRA and pay the taxes over the next four years. If the real estate is not distributed for five years, it will incur no tax when the deed is transferred to you personally. They do charge annual fees that are not nominal but they can provide invaluable advice.