How to Invest in Multifamily Real Estate Using a Self-Directed IRA

Imagine discovering a powerful tool that could unlock real estate investments through funds you already own but believed were untouchable until retirement. 

For many passive investors, the idea of tapping into an Individual Retirement Account (IRA) for such purposes seems off-limits – reserved only for stocks and bonds. But what if I told you that you can use your IRA to invest in multifamily real estate? 

This strategy has been around since 1974 but isn’t talked about a lot despite its potential to unlock funds previously thought to be unavailable. In this article, I’m going to show you how you can create a self-directed IRA so that you can take advantage of the money in your account and invest in real estate.

Discovering the Potential of Self-Directed IRAs

I met with one of my neighbors a while back and I was educating them on investing in real estate and apartment building syndications. 

He goes, “Oh, I wish I could invest, but I don't really have much money to invest, like $25,000.” At the time, the minimum was $50,000. 

So I said, “Just hypothetically, do you have an IRA?” Turns out, he had half a million dollars in his IRA. 

Maybe you’re in a similar boat and you’re wishing that you could buy some real estate and rental properties, but you don’t have the money to invest right now. If you have an IRA account, you can use that to invest. The way you do that is by using a self-directed IRA.

What Is a Self-Directed IRA?

This is nothing new. It's been around since 1974. It was created during the Employee Retirement Income Security Act. 

With a regular IRA, you're limited to only publicly traded securities like stocks and bonds. A self-directed IRA allows you to invest in alternative assets like real estate – and everything that grows inside that grows tax-free. 

Through a Roth IRA or traditional IRA, you can self-direct both of those. Since you’re spending less taxes on what you earn, you’re building long-term wealth. 

The Benefits of Investing in Real Estate Through an IRA

As long as you have an IRA (Roth or traditional), you can do this. You can use previous 401ks that have been rolled over into an IRA. You can self-direct those; the only limitation is that you can’t do it with a current 401k with your current employer. 

To open up an account, just Google “self-directed IRA custodian.” There are a number of good ones out there, check them out and sign up with one of them.

Setting Up Your Self-Directed IRA

You open up an account like you would at a bank and fund it – you can do this online.

Typically, there's a letter that you write to your previous IRA company saying, “Please transfer this amount of money into this account.” 

You can either close the other one or keep some of it in there. Then, when you make an investment, you instruct a custodian to complete the transaction. You can make loans, buy shares in an LLC, or purchase real estate. 

You can title real estate in the name of your IRA. The custodian signs those papers on your behalf and wires the funds to the closing attorney. Of course, all of the expenses and income related to the property are paid from and deposited into the IRA. It's basically used like a bank account with a trustee managing it on your behalf.

Navigating the Rules and Regulations

Now, there are some rules that you have to pay attention to. 

For example, there are prohibited transactions like self-dealing or benefiting personally before retirement. You can't take distributions before retirement.

You can’t pay yourself rental income. It’s got to back into the IRA account. You can't buy and sell property involving what they call disqualified persons. 

You also can't provide goods and services to the IRA because you benefit directly from them before retirement. You have to follow contribution limits, pay all expenses related to the IRA investments from the IRA itself, and deposit all income back into the IRA.

Getting Started with Your Real Estate Investments

How can you get started? Just Google “self-directed IRA custodian” and sign up to create that account.

As long as you have an IRA account (Roth or traditional), you can invest in alternative investments like apartments and other real estate syndications. 

You can now defer taxes, and in some cases be completely tax-free. 

We want to become your trusted source of quality multifamily real estate syndications and help you set up your self-directed IRA if you have one. 

You can begin passive investing in multifamily real estate, get cash flow, take advantage of these tax benefits, and build generational wealth. 

If that's something you want to pursue, let's schedule a call to make that happen. Just click the link below to get started.

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