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A common investment is to own rental real estate in your IRA or other types of property that generate income. Now is the time to buy real estate for cash flow and long term appreciation. Why? You can now buy a property at half the $/sqft price of a newly built home in many parts of the country. In addition, the rental rate in most parts of the country have increased which has resulted in a perfect storm for acquiring great income property.

Purchasing real estate in your IRA isn’t much different from a normal purchase of an investment property. There are a few exceptions, but this is the basic process assuming you have setup a suitable self directed IRA or solo 401K account:

Purchase Agreement Naming Your IRA As Buyer – “ABC Custodian FBO Your Name IRA”
Earnest Money Deposit MUST Come From Your IRA And Go Directly To Seller
Run Title Search As You Would With Any Investment Property Purchase
Get HUD-1 Settlement And Other Docs Prepared With Amount For IRA To Fund
Have Custodian or Trustee Sign All Closing Docs
Have Custodian or Trustee Wired Money To Closing Attorney/Title
Recorded Deed Goes Back To Custodian or Trustee For Filing
Ensure That All Payments Made To And Expenses Paid From The Investment Go Through The IRA.

For example, you find a property worth $150,000 in perfect condition and you pay $120,000 all cash from your IRA. You now rent it for $1500/month and make $18,000/yr which equates to 15% cash on cash return. This is a great return which would be difficult to impossible to consistently match in the stock market. In addition, this investment is very predictable unlike what happens in the stock market (which is a guessing game).

Now let’s take that same example and use leverage. What if we only use $20,000 of our money from our self directed IRA or solo 401K and get a non recourse loan for the rest. This would increase our return dramatically (50%+ cash on cash return) depending on the cost of the loan. This is when it gets fun and exciting to invest. So stay tuned to more great investment insight.