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Q & A With America’s Real Estate Professor: Using an IRA to Buy Real Estate

Published: Friday, Nov. 15, 2013 1:29 p.m. CST
Using an Individual Retirement Account to Buy Real Estate

Q. I have a pretty good sized IRA in mutual funds and I was wondering if I could use it to buy real estate. Mike S., Columbus, Ohio

A. The answer is yes, possibly. You can use an IRA and other retirement accounts to buy real estate. It’s called a self-directed IRA. It must be an investment property and generally you cannot have any personal use or gain from the property – your IRA gets all the gains. There are many restrictions and many financial issues related to using an IRA to buy real estate.

To get started, I’d suggest doing some research to learn about the rules and regulations. You’ll also need to set up an account with a self-directed IRA trustee or custodian, and they can steer you to the proper advisors to give you legal, tax, financial or due diligence guidance.

There are lots of items you should consider and I’ve outlined many of them in my article on the Zillow Blog titled “Using Your IRA to Buy Investment Properties.”

Take your time, do lots of research, confirm that it makes financial sense for you and save a little on your taxes by properly investing your IRA funds in real estate. Good luck!

Short-Term Leases

Q. I’ve had a few people tell me it’s best to do short-term leases so that if the tenants do not work out you can terminate the lease and find better tenants. I don’t think it’s a good idea because of all the work involved in re-leasing the property. What are your thoughts? Eleanor M., Raleigh, N.C.

A. You are right. It is a lot of work to re-lease a property! The process requires advertising, showing the property, doing credit checks, employment and rental history verification, moving the old tenant out and moving the new one in. Yuck!

I always tell people to do the hard work upfront to get good tenants and work even harder to keep those tenants!

To get good tenants, one must put and keep their property in good shape, ask reasonable market rents, advertise adequately, respond quickly to all property inquiries, ask the right opened ended questions and select a decent tenant.

Then work hard to keep them in place. Fix items when they break, treat them with respect, keep a good working relationship with them and for good residents don’t increase the rent much, if at all.

The longer the tenants stay, the less turnover, the less hassle and the more money you should earn as a rental property investor.

Leonard Baron, MBA, is America’s Real Estate Professor®. His unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University lecturer, blogs at Zillow, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com. Email your questions to: Leonard@ProfessorBaron.com

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