How to Use an IRA to Invest in Property
- 1). Consider REITs, which compile the investments of many investors and create and operate a portfolio of real estate assets. Under federal regulations, REITs must pay out at least 90% of their income in dividends to the shareholders, so they tend to have much higher dividends than normal stocks. In an IRA, these dividends accrue tax-free. Unlike owning property in an IRA directly, REITs will probably require far less effort by the investor.
- 2). Note the rules for adding real estate to an IRA. First, it is essential that the IRA custodian offers real estate as an option. Many limit investments to bank products, stocks, bonds, mutual funds and other securities. The Internal Revenue Code allows taxpayers to purchase property with funds held in IRAs. However, it cannot be a property that you or a family member sells to the IRA. Similarly, the property must be held by the IRA custodian and not you personally. There are other regulations and limitations that an investor should research, and it is wise to consult a retirement expert.
- 3). Research alternative ways to add real estate exposure to an IRA. Exchange-traded funds that specialize in property-related investments provide one of the easiest ways to invest in property for an IRA. For example, these ETFs might hold a portfolio of residential, commercial or industrial property-management companies. Similarly, they may hold a combination of REITs. This is the easiest way to create a diversified property investment for an IRA, especially since ETFs are available under almost all IRA custodial plans.