The answer to the question, “Can I buy real estate with my IRA?” is a definitive yes, but you need the right kind of IRA in order to do so. Before we find out how to practically invest an IRA in real estate, let’s first look at the different IRA platforms.
Standard IRA Platform
With a standard IRA, you will not be able to invest in real estate. The standard IRA usually comes through a bank, Wall Street brokerage, or similar institution, and only allows you to invest in Wall Street style products. Obvious examples of these products are stocks, bonds, and mutual funds. It does not provide a platform for investing in real estate.
The reason for this is that the banks and brokerage houses make a nice profit on stocks and mutual funds, and they are content to keep clients in the existing infrastructure. Real estate would require a whole new labor-intensive accounting system without the same guaranteed fee structure. Why fix it if it’s not broken?
Self-Directed IRA Platform
That brings us to the next platform: the self directed IRA. A self directed IRA does answer the question, “Can I buy real estate with my IRA?” with a yes, but here the devil is in the details. There are actually two kinds of self directed IRAs:
- One that uses a Trust as its platform, and
- One that uses a checking account.
Let’s look at the Trust platform first. In simple terms the way it works is that the custodian who holds your self directed IRA will be acting as a middle man via whom you may access the self directed IRA. Whenever you want to make a transaction, you have to go through the custodian. If you want to buy a piece of real estate with your self directed IRA, you have to go through the custodian. If you want to do renovations, you have to go through the custodian. If you want to pay a real estate contractor, you have to go through the custodian. If you want to … well, you get the picture.
Not only do you face the hassle of going through the custodian for every move you make, but your self directed IRA will also be charged a fee for the transaction. In effect, you are paying somebody to hassle you. So what’s the alternative?
A self directed IRA with checkbook control takes care of all of these problems. With checkbook control you can buy real estate with your IRA, and you can do so without the hassle or crushing fees. The way it works is with the power of a LLC. When you sign up with Broad, we will set up a LLC for your self directed IRA which will then allow you to open up a checking account at your local bank. This checking account is under the control of just one person: you.
That means that there is no middle man that you have to go through in order to access your self directed IRA. If you want to buy real estate with your IRA, just write a check to the seller. If you want to buy supplies for renovations, just write a check at your local hardware store. If you want to pay a contractor for repairs, just write him/her a check. By having access to your self directed IRA via a checking account, you have effectively cut out the fees and the aggravation of third-party processing.
With a self directed IRA with checkbook control, you can easily buy investment properties, such as foreclosures, multifamilies, and undeveloped land. So to answer the question can I buy real estate with my IRA, the answer is most definitely yes. Just make sure you do it with checkbook control.