Today, I decided I would take a few minutes to talk about what is probably our most popular investment, real estate. There are lots of reasons why real estate is the most popular thing to invest in through your self-directed IRA. First, most of our clients either own their home or are in the process of purchasing or renting a home, so they’ve already got a good grasp of what is involved with a real estate transaction. Also, with real estate pricing being very low for much of the country, now might be the chance of a lifetime to cash in on some amazing deals.

Purchasing property in your IRA is not much different from purchasing property as an individual. The first step is to set up your self-directed IRA. Once your self-directed IRA is set up and funded, the next step is to identify the property that you wish to purchase and negotiate a purchase price. Once you and the seller have agreed on the terms, make sure to have the title company (or whoever is preparing your documents) title all of the closing documents to “Sunwest Trust Custodian FBO your name IRA”. Technically, the purchaser of the property is your IRA Custodian who purchases it on behalf of your IRA.

We recommend that you have a CPA or Attorney review the documents with you to make sure that all the terms of the contract are what you intended them to be when you negotiated with the seller. It’s also important to have a CPA or Attorney make sure that the investment will not be considered a prohibited transaction. If you have a question about the definition of prohibited transactions, please click here: http://www.irs.gov/irs-drop/rr-06-38.pdf.

After reviewing the documents with your attorney or tax professional, have the purchase agreement sent to Sunwest Trust for signature. Instruct Sunwest Trust to sign the documents and return them to the title company or whoever is closing your real estate purchase. If earnest money is needed, you will need to direct Sunwest Trust to send the earnest money to the title company. Earnest money is considered part of the purchase. Make sure that you do not pay the earnest money out of your own pocket because this will be considered commingling funds and therefore a prohibited transaction.

Once you have scheduled your closing date, make sure to have the title company send the documents to Sunwest Trust for signatures. If the title company needs the original documents back, please make sure to give Sunwest Trust time to sign the documents and get them returned in a timely manner. We can always send documents via FedEx if necessary; just instruct us on what you would like us to do. The signed documents will serve as your proof of investment and we can either wire the money to the title company or send them a check, whichever you would prefer.

I hope this entry was helpful. If you would like to see a checklist of how to purchase or sell real estate out of your IRA, click on “Self-Directed IRAs” at the top of the screen and then click on “Real Estate Checklist” on the left-hand side of the screen.