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Investing Your IRA in Real Estate

I like to invest in things I understand – things I can touch. So part of my IRA is always in some real estate investment.

If you have a SEP IRA you may want to consider investing part of it in real estate. Did you know that your IRA can purchase a property, just as it can purchase a stock or bond, and collect tax deferred rent? According to national statistics, real estate investors are currently averaging over an 8% return in rental income on their investments. Any long term appreciation on the property is frosting on the cake.

Here in the tri-state area, annual rental rates for a 2-3 bedroom home range anywhere from $1,200 to $4,000 per month depending on the quality, size, location and amenities of the property. If you are considering this option, consult with your Realtor about which properties will give you the best yield on your investment.

I have done this myself several times with excellent results. You need to remember that any real estate investment must remain "passive". You cannot use the property yourself or have a family member use it. The IRA must directly purchase the property or be part of partnership that purchases the property and you must pay for all expenses directly out of the IRA. Any rental income must go directly into the IRA. If you want to renovate and flip the property, all renovation costs must be paid out of your IRA.

As always, the old adage “invest in what you know” is good advice. But if you want to diversify your portfolio, investing directly in real estate along with your stocks and bonds may be a good idea for you to explore. Of course, you should consult your tax advisor about your personal situation to see if you should consider taking advantage of this alternative investment.


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