Can anyone enlighten me on the details of holding Real Estatein an IRA?

[thefed]

I found lots of info on sites of custodians, but want an understandable comprehensive summary of what i can/cant do as well as how to go about it. Too bad Vanguard doesnt allow it!

 

[FinanceDude]

Too bad Vanguard doesnt allow it!

There's a good reason for that.........

 

[Sarah in SC]

Holding real estate in an IRA isn't really a great idea. That is just my personal opinion, based on my scant knowledge of how it works.

 

[thefed]

I've read a lot about it and it seems to be a very viable and advantageous option if it matches your goals.

I have a meeting set up with a company that specializes in this kind of thing. I'll give the details....but curious about anyone's opinion/experience

 

[JustCurious]

I think it's a terrible idea.

 

[kyounge1956]

Try reading a book called IRA wealth : revolutionary IRA strategies for real estate investment by Patrick W. Rice. It was published in 2003 so some of the info may be out of date, but it should give you a general idea of what you can and can't do. If your library doesn't have a copy ask for it on interlibrary loan and you can tell them the Seattle Public Library has a copy. Hope that helps.

 

[clifp]

The tax laws are exceedingly complicated with owning real estate in IRA (unless it is cash purchase). So make sure you talk to an accountant.

I have used Schwab's Alternative Investment department to invest in a private partnership (a mutual fund of start ups) in my IRA. Schwab's fees were quite reasonable and believe they also allow real estate investment.

 

[mathjak107]

its a really bad idea with many negatives, including not being able to take a depreciation deduction and not being able to pay any bills or put money into it from outside your ira sources i believe

 

[huskerblue]

The tax laws are exceedingly complicated with owning real estate in IRA (unless it is cash purchase). So make sure you talk to an accountant.

I have used Schwab's Alternative Investment department to invest in a private partnership (a mutual fund of start ups) in my IRA. Schwab's fees were quite reasonable and believe they also allow real estate investment.

Agreed it is very complicated and hard to find a custodian. You can't have any debt against it as it goes in, you can't use it for personal use, you have to place enough cash in there with it to pay all the expenses or a custodian won't touch it and those are just a few things off the top of my head.

About three years ago, I started noticing our firm getting calls for this and I turned to our IRA person and said, "uh oh, here's a bubble about to burst" just like variable life insurance and tech stocks in the late 90's blah, blah, blah. About the time everyone flies toward an idea, it's time to get the hell out!!

 

[Sarah in SC]

Husker, we have a grand total of one client holding real estate in an IRA (and actually, that is even a private LP that owns the land). We have a pretty high number of folks holding LPs in their IRAs, though, through Schwab's Alt Investment program. We did know of a guy that invested in a startup bank in his IRA. Yep, belly up and no way to take the losses. Dumb!

 

[thefed]

Seems to me to be a good way to build wealth through real estate if 1031 exchanges arent an option. Lets say I buy a home, rehab it, and either sell or rent it. Then i wait another year or 2 to do another.... In this case, capital gains treatment would be nice after a year. a 1031 would only make sense if I were to do several in quick succession. If it's held in the IRA however, the gains can grow tax-free until I'm ready to do another.


Anyhow, I'll post the details after the meeting

thanks

 

[Martha]

There are a few threads on the board that talk about the issue. You are planning to finance the real estate, yes? That creates some tax problems.

Here are some of the old threads: http://www.early-retirement.org/forums/f28/using-retirement-acct-to-buy-re-22504.html

In this thread, Boont and I talk quite a bit about the tax problems:

http://www.early-retirement.org/forums/f28/real-estate-roth-20012.html#msg114011

 

[thefed]

these would not be purchased with financing, cash only

 

[Martha]

OK, that helps. Do you have enough cash already in an IRA to do this? You can't make a loan from yourself to an IRA to make the purchase and the IRA yearly contribution limits are, needless to say, limiting. Be sure to educate yourself and read the IRS publication on prohibited transactions. I also suggest talking over with a tax adviser to evaluate the pros and cons.