Is a self-directed IRA trust a good way to invest in San Diego real estate?
A few years ago, we had an investor who was pulling money out of both his 401k and IRA to invest in several Carlsbad homes. He believed his money would be safer in real estate and would beat the market return he was getting with funds invested in the stock market. And though there are no guarantees in life, this investor made a wise and profitable decision.
Typically, people with corporate 401K accounts are limited to borrowing $50,000 from their holding with repayment due within 5 years. But by using a rollover option, one might transfer those funds (as well as IRA and Roth IRA funds) into a Self-Directed IRA that can can invest in non-owner occupied real estate. It is important to note:
You cannot personally benefit from the purchase of investment real estate held in a self-directed IRA–not even if it is a vacation rental home you use only occasionally. You can’t even pay yourself to manage it.
What if you don’t have enough in your retirement account to purchase the investment property for cash? It is possible to use your IRA as a down payment and use a mortgage to finance the rest. This only makes sense, though, if the property is generating enough income to comfortably make payments–and ideally pay off the loan to coincide with your retirement date. That would leave you with a free and clear property that can generate retirement income–or you might sell, and play mortgage banker for years on end and collect interest at a rate far above those of bank CD rates.
Self-Directed IRA’s can hold more than real estate. They might also buy gold, private companies, equities and other investments. We do not recommend you attempt to do this on your own–and strongly advise consulting with your accountant and/or attorney. You might also contact one of these custodians, whose fees will vary:
Self-Directed IRA Services
The Entrust Group