How to Use Your IRA to Invest in Real Estate

Were you aware that you have the option to use your IRA for investing in real estate? This can be a smart and secure method of generating passive income from real estate, as long as it is done correctly.

Using an IRA to Fund a Real Estate Investment

An IRA is a type of retirement savings plan that offers tax-free growth or tax-deferred basis for individuals to save for retirement. Funding a real estate investment with an IRA is possible, but it must be done correctly to maintain special IRS status and avoid legal and tax consequences.

To ensure a proper and legal financial decision, it is recommended to seek advice from a qualified financial or tax professional before investing. Basic guidelines should also be followed to keep the IRA-funded real estate investment within regulations.

• Don’t perform work on the property yourself. 

• Hire an independent professional to do work on the project.

• Don’t reside at the property or use it as a business.

• Don’t mortgage the property.

• Don’t claim depreciation on the property or take a loss on it.

• Pay costs out of the IRA and deposit income into it.

To maintain the special IRS status of an IRA, it is essential to use it correctly while investing in a real estate property. Seeking advice from a financial or tax professional is recommended to avoid any issues with the IRS. The property should be viewed as a financial transaction rather than a personal asset, and you must avoid residing in the property. Some people use an IRA-funded property investment as a vacation home, but this is not allowed under IRS rules.

Additionally, real estate syndication is a great strategy that aligns well with this approach to investing in real estate with your IRA.

Why IRA-Funded Investment is the Perfect Match for Real Estate Syndication

Real estate syndication allows investors to combine their resources through a sponsor to invest in bigger projects than they could manage alone, providing the benefits of passive investing while the sponsor handles the legwork.

Investing in real estate syndications can offer advantages such as positive cash flow, risk mitigation, portfolio diversification, and opportunities to achieve retirement and financial goals. As the sponsor enhances the property value and overall worth, investors benefit from growing income at established intervals.

With this structure, you can invest in various projects such as retail buildings, apartments, or condo communities. The growth of income coincides with the increase in property value, leveraging your IRA and enhancing its value.

Real estate syndication aligns with IRA-funded real estate investment rules as it maintains the necessary “at arm’s length” distance. It is important to consider these factors when investing in real estate syndications.

• All work is done by other people.

• You don’t live in it or use it as a business.

• All costs and income from your investment can go back into your IRA.

Adhering to the proper regulations for investing in real estate through an IRA should prevent any negative repercussions with the IRS. A skilled real estate syndication sponsor can further help you invest only in profitable properties, minimizing the possibility of loss.

But if you fail to handle the investment according to the rules, the IRS may levy a significant tax burden on you. For instance, if you withdraw money from the investment and transfer it to your bank account instead of reinvesting it in the IRA, the IRS could consider the IRA as taxable income and send you a substantial tax bill.

How to Invest in Real Estate Using Your IRA

Do you have an idle IRA? It could be a missed opportunity for wealth creation. If you’re interested in using your IRA to invest in real estate, OnBridge Capital can help you explore your options. Contact us today to learn more about our current investment opportunities and how we can help you fund profitable real estate projects.