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3 Ways to Partner with Your IRA for Real Estate Investing

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Your Real Estate IRA can partner with other funding sources to increase your investment power.

If you’re reading this article, you’re probably already aware of the significant tax advantages available when investing in real estate through a self-directed IRA, also known as the Real Estate IRA.

What you may not know, however, is that your self-directed IRA can also partner with other funding sources to increase your investment power and produce higher returns.

1) Partner with Other IRA Investors

So, you only have $100,000 in your Real Estate IRA, and you want to purchase a property priced at $250,000.

One way to make up the cost differential is to partner with other IRA investors. You can find one self-directed IRA owner to contribute the remaining $150,000, or you can find two to contribute $75,000 each. You can partner with as many other investors as you want. You must, however, maintain a consistent split on all transactions.

Example: You contribute $100,000 to the $250,000 property, representing a 40% share. You find another Real Estate IRA investor to partner up and cover the remaining $150,000, at a 60% share. Your IRA will then collect 40% of all rental profits produced by the property, and your partner’s IRA will collect 60% of the rental profits.

Similarly, your IRA will pay 40% of all expenses incurred by the property, while your partner’s IRA will pay 60% of all expenses. Finally, if you decide to sell the property, the sale profits will be split 60/40.

2) Partner with Family

If you are familiar with Real Estate IRA rules, then you may be shocked to find that you are allowed to partner with family members on new real estate investments. Prohibited transaction rules concerning disqualified persons clearly dictate that you cannot involve certain family members with a property that is already owned by your IRA (can’t rent to kids, can’t hire spouse to perform maintenance, etc.).

When it comes to the purchase of a new asset, however, you can partner with anyone you want! Even yourself…

3) Partner with Yourself

The same exception to the disqualified persons rule that allows you to partner with family members on a new real estate investment, also allows you to partner with yourself. Avoiding potential “self-dealing” scenarios can be trickier when partnering with yourself.

Self-directed IRAs are very clearly intended to benefit the account owner upon retirement, and not a moment sooner. For this reason, partnering with yourself may only be allowable if you have enough personal funds to buy the property in question even without using your self-directed IRA.

If you’re using self-directed IRA funds to supplement a purchase that you would not otherwise be able to afford, the IRS may see this as a prohibited transaction.

When it comes to creative real estate investing, partnering your Real Estate IRA can be a great strategy for leveraging your buying power, as well as saving taxes on your earnings.

To learn more about how to take advantage of this strategy, download the free report: Partnering Self-Directed IRAs.

 

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About the Author...

Hubert Bromma is founder and CEO of The Entrust Group, He is a well-known authority on the diversification of assets in tax-free and tax-deferred plans, with a specific focus on real estate investing.

Mr. Bromma has written several books, including "How to Invest in Real Estate and Pay Little or No Taxes," and “How to Make Money in Alternative Investments.” He has also been a frequent guest on CNBC, Bloomberg, MarketWatch, and other financial media programs.

If you have any questions, please contact The Entrust Group for more information.

Comments

  1. real estate says:

    Find a contractor to work with that you can get along with. There’s no reason to get someone to help you with fixing up the real estate you invest in if you don’t like how they operate. You can save yourself a lot of frustration if you just find someone that you know will work well with you.

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