Though most people know that real estate is an investment, a lot of people are taking advantage of the qualified retirement accounts to buy property as an appreciating or revenue-generating instrument like IRAs.
It’s really important to comprehend the legal ramifications, tax implications and various other intricacies of buying San Antonio real estate within your IRA.
So, let’s dive right into some tips on buying real estate with your IRA in San Antonio Texas!
Tips on Buying Real Estate With Your IRA in San Antonio
If you do not have a self-directed type IRA… first off… you’ll want to connect with your trusted financial advisor to find a reputable and low-cost self-directed IRA. Or, connect with us and we can guide you to some very good self-directed IRA businesses we have worked with previously.
Open a Self-Directed IRA
The very first step for buying investment properties in San Antonio in your IRA is to open a “self-directed” IRA. You can do this by visiting a qualified financial advisor or other reputable fiduciary to act as the IRA custodian. A fee-only financial advisor can help you set this account up with minimal hassle, while a commission-based financial advisor may attempt to steer you clear of purchasing tangible assets inside your IRA (he or she won’t earn very much on the investment).
Types of Properties You Can Buy With Your IRA and Rules
It’s possible to own a wide variety of properties inside your IRA, including commercial, residential, and industrial structures, in addition to unused land. Many savvy investors decide to buy parking lots, storage unit centers, and other types of property that need little maintenance but generate steady income.
Your IRA cannot own any house in which you live or vacation. Legally, you aren’t even permitted to spend one night in the house. You cannot avoid this restriction by “renting” the house from your IRA, or renting to your spouse, children, grandchildren, parents, or grandparents, nor can you use an IRA to purchase a property from a close family member. You could, however, rent a property to a sibling, cousin, or friend. A solution that many investors implement is to buy a house 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 earnings generated in your IRA cannot be used for your “personal current benefit.” This means that all income produced by the property has to stay inside the IRA until you retire. Selling the property will require you to leave all profits inside your IRA. Also, property taxes, improvements, insurance, and other expenses related to 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, and a 10% premature distribution penalty.
It is important that all distribution rules associated with an IRA (or Roth IRA) including taxation, beneficiaries, required minimum distributions, as well as other factors don’t change when using a self-directed IRA to buy a property. There may be a huge upside to real estate in your IRA, but it is best to know exactly what’s in store.