Benefits of Using Your Self Directed Retirement Funds to Buy U.S. Real Estate

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Benefits of Using your Self Directed Retirement Funds to Buy U.S. Real Estate: 

I have a few international friends (mainly Aussies) asking me about using their Self Directed Retirement Funds (SDRF) to buy US real estate, due to the fact the US has better cashflowing assets compared to Australia (lower barriers to entry here in the US). So I thought I would quickly summarize what I have learnt about buying US real estate with SDRF since I have moved to the US.

 

 

Using your self-directed retirement account (SDRA – for those foreigners reading this, here in the US they are called IRA’s) to buy real estate, remains the most popular way to diversify your retirement portfolio.

Advantages for buy real estate:

  1. Diverse investment options,
  2. Tax advantages,
  3. Control over the asset, unlike investing in the stock market.
  4. and the potential for large, consistent returns.

Follow these four steps to get started:

1. Open and Fund a Self-Directed IRA

Contact your CPA for advice on how to open and fund a self directed retirement account. There are many business out there that help with the ‘set-up’ process.

Once your account is established, it must be funded with the amount necessary to move forward with your real estate investment of choice. If you have an account, you can transfer/rollover funds from an existing retirement account, or you can fund a new account through a contribution.

2. Analyze Your Goals and Funding

There are several ways you can invest your retirement funds depending on your goals: Here are a few examples:

  • Direct Purchase – Within a direct purchase transaction, your IRA pays cash for the investment property. The title to the property will therefore reflect the name of the SDR account.
  • Partnering – When the investment amount exceeds your investment funds, you are able to partner your SDR funds with either personal funds or with other SDR funds. You can also partner with another person’s funds, such as a spouse or parent. Once you decide to end the investment, you then divide costs and earnings according to the amount that each party initially contributed.
  • Leveraging – With leveraging, your SDR funds can be used to purchase a property with a non-recourse loan and the leveraged property is then held in your retirement account.
  • LLC – Another investment option is to purchase ownership in a limited liability company, or LLC. An LLC provides further tax advantages while at the same time reducing the liability associated with individual partners. Once investing using an LLC, your SDRA then holds interest in the LLC or land trust. The title of the property is also held in the name of the LLC.

3. Explore Your Investment Choices

Take the time to explore the different types of assets within the world or real estate. Take the time considering all of the necessary factors when moving forward with an investment and how it applies to your ‘investment goals’: Here are just a few choices:

  • Residential real estate – apartments, single- and multi-family homes, mobile homes, condos, etc.
  • Commercial property – office buildings, movie theaters, gas stations, etc.
  • Improved and unimproved land (leveraged or un-leveraged)
  • Trust deeds and mortgage notes
  • Real estate options

4. Direct 3rd Party Company to Make the Purchase

Once your account has been established, the company that which you set up the account will be the third party administrator between you and the assets held within the account. When you have chosen a real estate investment and investment strategy, you will need to submit a Buy Direction Letter informing the 3rd party to purchase the investment through your account.

Following the purchase, all expenses associated with the investment must be paid from SDR funds, and all profits stemming from the investment must flow directly into the SDRA for your future use.

Hope you got some good information out of this blog; comment below!

Until Next Time! Happy Investing!