Want to get started in real estate investing, but don’t know how to fund your first deal?

Learn more about using a self-directed IRA!

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Investing in real estate can be a lucrative way to build your portfolio and generate passive income. However, not everyone has the capital to fund a real estate deal outright. This is where a self-directed Individual retirement account (IRA) can come in handy. In this article, we will explore what a self-directed IRA is and how it can be used to fund a real estate deal.

What is a self-directed IRA?

A self-directed IRA is an individual retirement account that allows you to invest in a broad range of assets, including real estate. Unlike a traditional IRA or a Roth IRA, where your investment options are limited to stocks, bonds, and mutual funds, a self-directed IRA empowers you to diversify your retirement portfolio through real estate, precious metals, and other alternative investments.

How to fund a real estate deal with a self-directed IRA?

The process of funding a real estate deal with a self-directed IRA is relatively straightforward. Here’s how it works:

Step 1: Establish a self-directed IRA account.

To establish a self-directed IRA account, you need to work with a specialized custodian or administrator that allows for alternative investments. Make sure that the custodian or administrator you choose is experienced and trustworthy.

Step 2: Transfer funds into your self-directed IRA account.

You can fund your self-directed IRA account in two ways. First, you can make a direct contribution from your existing IRA or 401(k) plan. Second, you can transfer funds from any other qualified retirement plan, including a SEP or SIMPLE IRA.

Step 3: Locate a real estate investment.

Once your self-directed IRA is funded, it’s time to start looking for a real estate investment opportunity. You can invest in various types of real estate, including single-family homes, multi-family units, commercial properties, and land.

Step 4: Make an offer and close the deal.

Once you have identified a real estate investment that meets your requirements, it’s time to make an offer. The offer process is similar to any other real estate transaction. Your custodian or administrator will transfer the necessary funds to complete the transaction.

Step 5: Manage your investment.

After your real estate investment is complete, it will be managed by your self-directed IRA custodian or administrator. All expenses related to the property, including taxes, repairs, and maintenance, must be paid using funds from the self-directed IRA account. Any income generated from the investment will also be deposited directly into the self-directed IRA account.

Conclusion

Investing in real estate using a self-directed IRA can be an excellent way to diversify your retirement portfolio and generate passive income. However, it’s essential to do your research and work with a trusted custodian or administrator. By following the steps outlined above, you can successfully fund a real estate deal using a self-directed IRA account.