#20: Real Estate Investing 101 – How to use a self-directed IRA to invest in real estate (w/ Derreck Long of Quest Trust Company)

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Show Notes:
4:00 – Intro
4:20 – What is an SDIRA?
6:00 – How you can use SDIRAs
7:30 – How to convert your IRA to an SDIRA
8:00 – Employer IRAs vs everything else
9:00 – Only move over what you need
10:00 – Don’t move your full IRA amount
10:45 – Advantage to using cash vs an SDIRA
12:00 – Avoid all taxes in SDIRA
12:45 – What’s your exit strategy?
15:00 – How does an SDIRA affect depreciation?
16:30 – Opportunity zones
18:00 – The real advantages of SDIRAs
20:00 – The downsides of an SDIRA
23:30 – SDIRAs impact on capital gains
26:30 – SDIRA vs 1031 exchange
28:00 – The steps to set up an SDIRA
30:00 – Set up an account immediately
32:00 – What paperwork will there be?
34:30 – Just get started investing in real estate…(read more)

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Real estate investing has long been regarded as one of the most profitable and stable investment opportunities available. Traditionally, individuals have used their personal savings or secured a loan to invest in properties. However, with the rise of self-directed Individual Retirement Accounts (IRAs), investing in real estate has become more accessible and convenient. In this article, we will explore the basics of using a self-directed IRA to invest in real estate.

A self-directed IRA is an individual retirement account that allows account holders to have control over their investments. Unlike traditional IRAs, which limit investments to stocks, bonds, and mutual funds, self-directed IRAs enable investors to diversify their portfolio by including non-traditional assets, such as real estate.

To start investing in real estate through a self-directed IRA, the first step is to establish a self-directed IRA account with a qualified custodian or trust company. These entities specialize in administering self-directed IRAs and will help ensure compliance with IRS regulations. It is essential to choose a reputable and experienced custodian, as they will play a crucial role in guiding you through the process and handling the necessary paperwork.

Once the self-directed IRA account is set up, the account holder can contribute funds to the account, similar to a regular IRA. The contributions made to a self-directed IRA can be in cash or from a rollover or transfer from an existing retirement account, such as a 401(k) or another traditional IRA.

After the account is funded, the account holder can start investing in real estate. However, there are specific rules and restrictions associated with investing in real estate through a self-directed IRA. For instance, the IRS prohibits using the property for personal use or benefiting directly from it until retirement age, generally around 59 and a half years old. The property must be held as an investment and any income or expenses related to the property must flow directly through the self-directed IRA.

The self-directed IRA can invest in various types of real estate, including residential or commercial properties, rental properties, land, and even mortgage notes. It offers investors the opportunity to diversify their retirement portfolio and potentially earn rental income, capital appreciation, or both.

When investing in real estate through a self-directed IRA, it is crucial to consider factors such as location, market conditions, property type, and potential returns, just like in any real estate investment. Conducting thorough due diligence, working with experienced professionals, and seeking advice from real estate experts can help mitigate risks and enhance the chances of a successful investment.

While investing in real estate through a self-directed IRA offers several advantages, such as potential tax advantages and portfolio diversification, it also comes with responsibilities. The account holder must ensure compliance with all IRS rules and regulations, including filing the appropriate forms and keeping accurate records. Any income or gains from the real estate investment must be reinvested back into the self-directed IRA account, ensuring all transactions occur within the account’s custodial framework.

In conclusion, using a self-directed IRA to invest in real estate can be a smart and rewarding strategy for retirement planning. It allows investors to tap into the lucrative world of real estate while enjoying potential tax benefits. However, it is essential to thoroughly understand the rules, regulations, and responsibilities associated with investing in real estate through a self-directed IRA. Seek advice from qualified professionals and conduct proper due diligence to maximize the potential of your real estate investments within this IRA structure.