You can own rental real estate in your IRA portfolio, but there are pros and cons to this type of investment. There are also other ways to invest in real estate in an IRA. Here are some things to consider.



One question, that many people have, concerns the legality of holding your own rental real estate in your IRA. There are a few regulations that are relative. As with any IRA account, you must have a trustee or custodian and your account must be self-directed. The process is as follows.

You contact your custodian and direct them to use funds in your IRA to purchase a property. The property can be a single family home, a multi-family unit, raw land, etc. You can not put real estate in an IRA if you or your beneficiaries live on the property.

So, for example, if you own rental real estate in your IRA, you could not lease the space to yourself or your close family members. It might even be a problem to lease to distant family members. The safest bet is to leave the family out of the equation.

The best way to be sure that you follow all the regulations related to real estate in an IRA is to choose a knowledgeable custodian. Most are familiar with traditional investments, like stocks and bonds. But, few are familiar with real estate investing and fewer still offer their clients that option. Equity Trust is a good choice.

Now we come to the pros and cons that you should consider if you want to own rental real estate in your IRA. The leasing market is cyclical. During down times there are many vacancies. As demand increases, you will have more tenants and be able to charge higher rents. Similar to the ups and downs of the stock market, there is usually a consistent upward trend for the long-term, with many spikes and valleys in between.

People who have rental real estate in an IRA usually become property managers and employers. Maintenance is a constant requirement, so you hire a maintenance crew. Someone has to show the property and answer inquiries, so you hire a realtor. In some cases, the costs outweigh the profits.

People who see the best returns are those that hold real estate in an IRA for short periods of time, maybe a year or two. They find a house in need of repair with a motivated seller. They have the repairs completed and put the property back on the market at a price that reflects the upgrades. As they wait for a buyer, they sometimes rent out the property.

The purchase price and cost of repairs come out of the account. The rental income and eventually the profits from the sale go back into the account. People see large returns, if they find the right deal, in relatively short periods of time.

If you want to own rental real estate in your IRA, but you want to avoid the headaches and the hassles, there are experienced real estate investors that are willing to take you by the hand and show you the way. They can help you avoid the pitfalls and find the deals that are most likely to help you increase your retirement funds quickly.