With a truly self-directed IRA, you’re not limited to stocks, bonds, or mutual funds. You can purchase real estate assets ranging from residential and commercial properties to land, mobile homes, and more as alternative investments for your IRA. Standalone IRA real estate investments can be made through direct purchases, partnership funds, an LLC, or with a recourse-free loan. If you spend even a single night in a rental property purchased with IRA funds, your entire self-governing IRA is no longer considered an IRA from the first day of the year.
Your SDIRA owns the investment property, and all related income and expenses must flow through SDIRA. You can also invest your retirement money in high-risk, high-yield investments such as Bitcoin and early-stage private companies. However, keep in mind that they are more complicated to manage and incur more additional fees than regular IRAs. Make sure you’re aware of all the fees you may incur by investing in a self-directed IRA.
You can invest in a wide variety of alternative assets that most financial institutions are generally unable to handle. With a self-managed IRA, you can use retirement funds to invest in real estate with tax relief. Through your SDIRA, you can invest in limited liability companies (LLCs), limited partnerships (LPs), C companies, private placements, private hedge funds, real estate investment trusts (REITs), startups, and small businesses. The Securities and Exchange Commission (SEC) published an investor bulletin warning investors of the potential risks associated with investing via self-directed IRAs.
The Retirement Industry Trust Association (RITA), a self-governing IRA industry trade group, estimates that assets in these types of retirement accounts account for 3 to 5 percent of total assets held in IRAs. Property, expenses and profits are divided in proportion to each investor’s contribution to real estate assets. According to the Internal Revenue Service (IRS), an IRA custodian “must be a bank, a federally insured credit union, a savings and credit association, or an entity approved by the IRS as a trustee or custodian. You can choose to open a self-governing IRA, such as a traditional IRA, or a Roth IRA with the same pre- and post-tax contribution rules.
If you’re a new real estate investor, you could consider a range of different real estate values to find the one that best matches your industry knowledge.