You’ve built your career helping your clients create long term wealth with real estate. What if you could use your knowledge to strengthen your own financial future? With a Self-Directed IRA, you can do exactly that.
What is a Self-Directed IRA?
A Self-Directed IRA (SDIRA) is simply an IRA. What differentiates it are access and control; and with a SDIRA, both are unlimited. Your investment options go beyond the typical stocks, bonds, and mutual funds offered by banks. Instead you can diversify your retirement portfolio with alternative investments, like real estate.
Investing with a SDIRA doesn’t mean you’re committed to a certain type of real estate either. Popular options include developed or undeveloped land, single family homes, commercial real estate, multifamily housing, or even mortgage notes. Just like with your clients, your real estate expertise is your greatest asset.
Choose the right account type
Being a real estate agent means there’s a good chance you’re self-employed. In addition to necessities like taxes and health insurance, you’re also responsible for your retirement planning. With a SDIRA you have as much control over this as you do with the rest of your small business.
There are a number of accounts that could fit your needs, each with their own tax advantages, contributions limits, and eligibility requirements. Traditional IRAs, Roth IRAs, SEP, and SIMPLE plans can all be self-directed so you can use them to invest in real estate and other alternative assets. To learn how these work and how they differ, check out our Account Guide.
How to invest in real estate with a SDIRA
When you self-direct, your practical experience becomes the foundation for your retirement strategy. And your SDIRA is the vessel that executes it. The process for purchasing real estate with a SDIRA isn’t much different from a standard transaction. However, there are some rules and regulations you must follow to keep your account in good standing.
Here’s a quick overview of how it goes:
- Open a SDIRA. As mentioned, you can choose between a few different account types. Consult your tax advisor if you’re unsure which is best for you.
- Fund your SDIRA via a transfer, rollover, or cash contribution. If you’d like to move funds from an existing IRA or employer-sponsored plan, you can do so with a transfer or a rollover. You can also start by making a cash contribution and growing your account year after year. Learn more about different funding methods here.
- Find the right property and determine your purchase strategy. Some popular options include direct purchase, partnering, leveraging, or via a limited liability company (LLC).
- Direct your SDIRA provider to initiate the transaction. Make sure the contract is titled with the name of your SDIRA as the buyer. For example, “The Entrust Group FBO (For the Benefit Of) [Client Name] [Account #123456].” Once the contract is executed, your provider uses your SDIRA funds for the earnest money deposit.
- Close escrow. At this time, you’ll submit any remaining paperwork like a grant deed, title report, or a closing cost statement to your SDIRA provider. They’ll then send the funds to finalize the transaction.
Upon completion of these steps, the investment property belongs to your SDIRA. This means any income and expenses related to the property will go through your SDIRA; not your personal funds.
What should you do next?
Learn more about the process for investing in real estate with a SDIRA. Get your free copy of our 5 Steps to Investing in Real Estate guide today.