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Tips on Buying Real Estate with your IRA in Savannah – 32Homes LLC

Mar 19, 2022

Real estate is generally thought of as an investment, but many people are using qualified retirement accounts to purchase real estate as an appreciating or revenue-generating instrument, similar to IRAs.

In order to purchase Savannah real estate within your IRA, you must understand the tax implications, legal implications, and various other nuances.

So, let’s dive into some tips on buying real estate with your IRA in Savannah GA!

Tips on Buying Real Estate With Your IRA in Savannah

If you do not yet have a self-directed IRA, you’ll need to connect with your trusted financial advisor to find a reputable and low fee self-directed IRA.

Open a Self-Directed IRA

To buy investment properties in Savannah within your IRA, the first step is to open a “self-directed” IRA. To do this, you should consult with a qualified financial advisor or another trusted fiduciary to act as the IRA custodian. Fee-only financial advisors can help you create this account with minimal hassle, while commission-based advisors may discourage you from buying tangible assets within your IRA (they won’t earn much on the investment).

Types of Properties You Can Buy With Your IRA and Rules

You can own a wide variety of properties within your IRA, including residential, commercial, and industrial structures, as well as unused land. Many savvy investors choose to purchase parking lots, storage unit facilities, and other types of property that require little maintenance but generate steady income.

Your IRA cannot own any home where you live or vacation. Legally, you aren’t even allowed to spend one night on the property. You cannot avoid this restriction by “renting” the property from your IRA, or renting to your spouse, children, grandchildren, parents, or grandparents, nor can you use an IRA to purchase a property from close family. You could, however, rent property to a sibling, cousin, or friend. A solution that many investors implement is to purchase a home for their IRA, rent it out for income until retirement, then assume residence upon retirement.

How Does Income Work With Real Estate In An IRA?

The income generated in your IRA may not be used for your “personal current benefit.” This means that all income generated by the property must remain within the IRA until you retire. Selling the property will require you to leave all profits within your IRA. Also, property taxes, insurance, improvements, and other costs associated with the property must be paid by the IRA. Failure to comply with these regulations could disqualify your IRA, subjecting you to income taxes on the entire value of the property, plus a 10% early distribution penalty.

When using a self-directed IRA to purchase a property, all the rules associated with an IRA (or Roth IRA), including taxation, required minimum distributions, beneficiaries, and other factors need to remain the same. A real estate IRA can offer huge returns, but you should know exactly what you’re getting into.