Buying real estate with Roth IRA funds is fairly simple and a good idea for several reasons. With a roll over IRA buying real estate is also possible and can be a good way to diversify your portfolio. In both cases the first thing that you will need is a self-directed account and the right trustee.
Many of you may be accustomed to having someone else make your investments for you; a brokerage, your trustee or account custodian. While that is the simplest way to grow your retirement account (and maybe the safest, depending on your investment knowledge), there are only so many types of investments that can be made on your behalf, typically, stocks, mutual funds, certificates of deposit or bonds.
With a self directed account, you have more investment options. With certain trustees, you have even more options. There are only a few types of investments that are prohibited by law. Investing in life insurance is one. Buying real estate with Roth IRA or traditional IRA funds is allowed, but most brokerages do not offer their clients that option.
In a roll over IRA buying real estate is also allowed. You just have to follow the rules. The rules are the same regardless of what type of IRA, you have. Usually if you have a roll-over IRA, it means that your funds were originally in another type of account, a 401-K for example. Once you have transferred the funds from one account to another, the fact that it is a roll over account is irrelevant, when it comes to rules and regulations regarding investments.
The regulations that apply to buying real estate with Roth IRA or traditional self-directed retirement accounts are fairly simple and straight forward. You cannot buy houses or land for your own personal use. Neither you, nor your family members can live in a house that is deeded to your IRA. Real estate deals must be made for investment purposes only and can only be of benefit to your retirement account.
Any funds that are needed for repairs, upgrades, remodeling or general maintenance must come out of the IRA and any profits (rental or resell income) must go back into the account. You must avoid making any purchase that could be considered “self-dealing”. A knowledgeable (and honest) custodian can fill you in on the legal details and complete information about buying real estate with Roth IRA funds.
If you are just about to transfer funds into a roll over IRA buying real estate with the account will only be possible if you a)get a self-directed account and b)find a trustee or brokerage that offers you that option. The Equity Trust Company is a good choice for a self directed IRA custodian. Now remember that they can only do what you ask them to do and insure that your transactions are legal. They cannot help you find the right deals. That is up to you.
If you are not an experienced investor, you can still profit from buying real estate with Roth IRA funds, if you get the right help. There are a small number of experienced real estate investors that are willing to help people grow their retirement wealth. It’s always a good idea to ask for help.