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How To Purchase Real Estate Through An IRA

Aug 17, 2007
Buying real estate through an IRA can be a good option, for those uninterested in investing in the stock market. When considering using an IRA to invest in real estate, you have the option of houses, raw land, commercial properties, condos or mortgage notes. Some people use an IRA to invest in real estate so that they can remodel it and then sell it. On the other hand some people make it an income property by having tenants. The rent they receive goes to the IRA.

How to Start
How do you begin the process of buying real estate through an IRA? It is not possible to use a basic IRA for this purpose. You must open a self-directed IRA account. Although, insurance companies and banks may assist you in opening a self-directed IRA account they may do so only for the products they market. Looking for an independent administrator, who can play the role of a custodian or trustee, may be helpful. However, you need to pay these fee-based administrators every time you use their services. For example, if you need weekly payments, you may have to pay $ 10 for every payment. On the other hand if you take the services of an asset-based administrator, you pay a definite percentage annually based on the total value of assets. The percentage may be as high as 1.5 % for a $ 40,000 portfolio and it may be as low as 0.3 % if you have a million dollar portfolio. The third option is a hybrid-based administrator. In this case the combination of both of the abovementioned approaches is adopted for charging fees.

Understanding The Options
You have several options open when buying real estate through an IRA. You should make a careful study of all the advantages and disadvantages of these options before choosing the type that best suits you.

Traditional IRA
If you are in your fifties, you can deduct an amount between three thousand and five thousand dollars, annually from your income using traditional IRA. However, as soon as you start withdrawing the amount, these funds are treated as regular income.

Roth IRA
The second option is the Roth IRA account. In this case you are not eligible for any deductions on the current contributions. However, a tax-free withdrawal of funds is possible. Roth IRA is the best choice for buying real estate through an IRA if you wish to make investment for a longer period of time.

SEP IRA
The third option is the SEP-IRA account. Small companies and self-employed individuals can get the most benefit out of it. Real estate practitioners gain a lot of advantages from this account, because they can make funds very quickly for buying properties.

Additional Help
There are professional online firms that offer help, regarding buying real estate through an IRA.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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