What Kind of Real Estate Qualifies for a Self-Directed IRA?
A “Self-Directed IRA” is not a legally defined term, but an industry term for an account that allows the account holder to choose their own investments. It is an IRA that can accommodate REAL Estate related investments along with a virtually unlimited list of other asset types. Since Real Estate is allowed the next question typically is typically what kind qualifies and who can benefit?
When looking at any IRA investment we have to look at two primary factors;
What Do You Want to Invest In?
Anything other than Collectibles, Life Insurance Contracts & Stock in a Sub S-Corp.
Who Are You Transacting Between or for the Benefit Of?
Anyone/thing other than Lineal Ascendants, Descendants, Spouses or other Entity Owned in a Controlling Interest by a Disqualified Party (DP).
When looking at Real Estate the purchase must simply be for Investment purposes. Rarely does the investment cause an issue but it is the use that causes problems.
Any investment made between or for the benefit of a DP constitutes a prohibited transaction. You cannot acquire from or sell to a DP. A DP cannot use or benefit in any way from the investments made. So, examples of prohibited Real Estate investments (because of their use) would include an office building to occupy, a vacation home to use and a home for Mom/Dad or daughter/Son. Consider the following:
- Rental Houses
- Apartment Buildings
- Office Buildings
- Retail Centers
- Any Real Property to be held for Investment…
- A Future Retirement Home?
- Primary Residence
- Second Home
- Home for a disqualified party
- Office Building to be used by a DP
So, you can see the Investment must be made solely for Investment purposes. A home for retirement is fine though the Investor nor his/her family can use the property until it has been taken out of the plan as a distribution. One last thing to mention is that for some reason brother/sisters, aunts/uncles and cousins are not disqualified parties…
If you are considering an investment in Real Estate reach out to IRA Advantage today with your questions, we are the guys with the answers!
Call in at 800-475-1031 with any questions.
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