Everyone depends on being able to retire one day. In the U.S., we believe in storied retirements, complete with sunny days with the grandchildren, hitting the links, and drinking bloody marys over games of bridge. The problem is that retirement isn’t as sure as it used to be, or it’s a little further in the future for many Americans. In fact, more than one in four Americans believes that they will have to work well past the age of 65 to be able to retire comfortably (until the age of 80). People typically start individual retirement accounts (IRAs) to help prepare for retirement, but the key to good preparation is smart investing. Here are a few things you probably didn’t know about investing with an IRA.
1. You Actually Can Invest in Real Estate With an IRA
The Internal Revenue Service (IRS) does have a number of different rules and guidelines about what a person can and cannot invest in with their IRA. Some prohibited investments include coins, collectibles, antiques, and the like. You may have also heard that you can’t invest in real estate with an IRA, but you actually can. It can only be done with non recourse IRA loans.
2. The Non Recourse Loan Agreement
Self directed IRA lending offers the IRA owner to be more flexible in his or her investments, and choosing to invest in real estate is pretty common … it just has to be done the right way. Getting a non recourse mortgage loan involves two main parties, the borrower and the lender. The borrower puts up some collateral for the loan, which secures it (these can never be unsecured loans). The non recourse lender then, of course, lends the non recourse mortgage loan, but can only seize the original collateral and nothing else.
3. There’s Just One Caveat
The only thing you really need to know about investing in real estate with IRAs is that you cannot in any way benefit from it until retirement. This means you cannot collect any rent, or allow any family or friends to live in the property. You are also prohibited from living in the property yourself.
Do you have any questions about investing in real estate with an IRA? Feel free to ask us in the comments section.