What Is Self Directed IRA Real Estate Investing?

Posted by Tom Dunn

September 17, 2008

by Tom Dunn

You may be wondering what all the confusing language surrounding IRA Real Estate Investing really means. Perhaps you have heard the term “self-directed” applied to IRAs used to invest in real estate, but the question is, “What does self-directed really mean, and why is it the best IRA for real estate investing?”

Like most of my readers, you probably know something about real estate, but you may know almost nothing about IRAs. Maybe you’ve got a job where you have a 401K retirement account. You most likely contribute directly to your retirement account out of each paycheck, and maybe your employer matches those contributions. The money contributed to your 401K is tax deferred (up to certain government imposed limits) until you withdraw it at retirement age.

An IRA is also known as an individual retirement account, individual because instead of being related to your workplace, you can open an IRA for yourself, and deposit directly to it on your own. If you like, you can open an IRA in addition to your existing 401K, and you can contribute up to a yearly maximum (also mandated by the IRS).

You can also move the funds from an existing employer sponsored 401K into an IRA. This is called an IRA roll-over, and there are very specific rules for how these must be handled. I’m just giving you the basics in this article… good so far.

Unfortunately, neither the 401K or the IRA can be used to invest in real estate, unless the custodian of those accounts (usually a bank or financial institution) chooses to place a part of the money from the group into a REIT (real estate investment trust) or some similar vehicle. Either way, you have virtually no control over this process, other than to earmark a certain percentage of your total account into various funds. You have no say over what funds the group is invested in.

It doesn’t seem like a good idea that some nameless fund manager in who-knows-what city should be telling you where your money should be invested, does it? Of course not, and that’s why the Self-Directed IRA is such a powerful tool. You get to designate, or direct, your funds into exactly the investments you like - and preferably know something about. This means you can control all those wonderful tax-deferred dollars residing in your own retirement account.

It’s simple and easy to open your very own self-directed IRA. Just find a custodian who specializes in these accounts, and they will guide you through the process, and help you abide by all the government rules. Then, your tax-deferred account will grow the way you want it to.

There is even a Socially Conscious Real Estate Investing program, in which the company will handle all of the paperwork, all of the hassles, AND all of the fees associated with setting up your self-directed IRA. They will also handle everything when it comes to buying and selling the property, and the property management hassles.

About the Author:

Tom Dunn is a writer, real estate investor, and champion of Socially Responsible Real Estate Investing Programs. Visit his practical website IRA Real Estate Investing Programs for up-to-the-minute information on using your own retirement account to earn a powerful, tax-deferred, double-digit Return On Investment.

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