While many individuals recognize real estate as a viable investment, a growing number are leveraging qualified retirement accounts to acquire properties as a means of appreciation or income generation, such as through IRAs.
However, you need to fully understand the tax implications, legal considerations, and other complexities involved in purchasing real estate in Southwest Florida within your IRA is crucial.
Let’s explore some guidelines for investing in real estate with your IRA in Southwest Florida.
Tips on Buying Real Estate With Your IRA in Southwest Florida
If you are currently without a self-directed type IRA, it is essential to engage with your trusted financial advisor to identify a reputable and cost-effective self-directed IRA. Alternatively, feel free to reach out to us, and we can recommend some excellent self-directed IRA providers with whom we have established relationships in the past.
Open a Self-Directed IRA
The first step for investing in real estate in Southwest within your IRA is to open a “self-directed” IRA. You can do this by consulting a qualified financial advisor or trusted fiduciary to serve as the IRA custodian. A fee-only financial advisor can assist you in setting up this account with minimal hassle, whereas a commission-based financial advisor may discourage you from investing in tangible assets within your IRA due to lower potential earnings.
What Types of Properties You Can Buy in Southwest Florida With Your IRA and Rules
You can Invest in a diverse and wide range of properties within your IRA, such as residential, commercial, industrial structures, and undeveloped land. Some astute investors opt for parking lots, storage unit facilities, and other low-maintenance properties that yield consistent and many times considerable returns.
It’s important to note that your IRA is restricted from owning any residential property where you reside or vacation. You are prohibited from spending even a single night in such properties. The workaround of “renting” the property from your IRA or leasing it to family members is also not allowed. However, you can rent to individuals like siblings, cousins, or friends. Many investors address this restriction by purchasing a home for their IRA, renting it out for income, and later residing in it post-retirement.
How Does Income Work With Real Estate In An IRA?
When investing in real estate through your IRA, it’s crucial to understand that the generated income cannot be used for personal benefit until retirement. All profits from property sales must be reinvested in the IRA. Additionally, expenses like property taxes, insurance, and improvements must be covered by the IRA. Non-compliance with these rules may lead to IRA disqualification, potentially resulting in income taxes on the property’s full value plus a 10% early distribution penalty.
Adherence to distribution regulations, taxation, required minimum distributions, and other IRA rules is essential when utilizing a self-directed IRA for real estate investments. While real estate offers significant potential within an IRA, understanding the implications is key to success.