While many people want to use the power of a self-directed IRA for real estate investing, they often feel they can’t get started because they don’t have enough money in their plan. Thankfully, there are several creative ways to bring your real estate transaction to fruition even when your situation is less than perfect. Even if you are low on funds in your self-directed IRA you can still become a real estate investor. You just need to use some creative real estate investing techniques. While the IRS does have strict rules for self-directed IRA’s, it still allows for considerable flexibility in growing the plan’s assets.
Partner Up Instead of Going Alone
There is nothing to stop you from partnering with someone else when making self-directed IRA real estate investments. While you on your own may not be ready to become a real estate developer, there are many opportunities waiting for your investment. You can go in jointly with other IRA plans, investors, or even LLC’s in investing in a project. You can even partner with prohibited persons that you can’t sell or buy from. Together you can jointly own property. Creative real estate tactics like partnering with others also gives you the chance to learn from more experienced investors. The rules governing your self-directed IRA require that you only pay fees and costs of the investment in proportion with the plan’s percentage of ownership in the property. If you are a 10% owner, your self-directed IRA must pay 10% of the fees and costs.
Leveraging the Property
Once you have one asset in your IRA, you can leverage that property to become a larger real estate developer. The best practice is to get a non-recourse loan, one that uses the property as collateral and keeps the lender from coming after you, your other assets, or the assets of the IRA in case of default. While these loans are more expensive and harder to get, for the creative real estate investor, they are still available. The IRS does allow you to leverage plan assets so long as it is not for personal use and the money is used to acquire further investments for your self-directed IRA. Don’t let the idea that you don’t have enough money in your self-directed IRA keep you from starting your path as a real estate developer. Creative real estate investors can even transfer money from old 401(k) plans as well as employ other strategies to grow their portfolios.
for more information about creative real estate investing:
Contact Gene Mock, Associate Broker,
Premier Team ~ Keller Williams Realty
Gene Mock, Realtor® of the Year 2014 by the Dulles Area Association of Realtors®
The Real Estate Developer’s Guide to Creative Real Estate IRA Investing