When it comes to purchasing rental property, oftentimes one of the hardest parts of the transaction is coming up with the funds that you need. This is particularly the case if you own (or plan to own) multiple properties. While many investors will turn to various creative financing strategies, most overlook a source that could potentially hold some – or even all – of the funds that you need. This is a traditional or Roth IRA account.
For many people, the money that you hold in an IRA may be your largest financial account. So, if you’re looking for a way to diversify your long-term investments, using these funds for the purchase of rental real estate could provide you with a way to obtain investments other than stocks, bonds, and mutual funds – while also reaping the benefit of tax-deferred or tax-free growth on your properties.
Factors to Consider When Using IRA Funds to Purchase Property
It is important to understand that when using your IRA funds for the purchase of property, the money will need to be housed in a special type of IRA that is known as a “self-directed” IRA account. This is a type of IRA account that can allow you to have more control over what you use the funds for – including real estate purchases. Not all financial services companies offer truly self-directed IRA accounts, so it is important to be sure that you work with a company that specializes in these financial vehicles.
When using self-directed IRA funds for real estate purposes, you will also need to put the rental income that you receive from your tenants back into the IRA account. Likewise, money for any repairs and other property-related expenses will need to come from your self-directed IRA.
As you acquire rental real estate, you may find that the maintenance of the properties and the management of tenants can be a time consuming endeavor. For that reason, working in conjunction with a professional property management team can allow you to reap the benefits from your investments, while at the same time, freeing you up to do other things. For more information on how a property manager can be beneficial for you, Contact Us.