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Self Directed IRA Investments: Investors Buy Real Estate Investments Using IRA Funds


Even with the housing market still in turmoil, many investors are still eager to buy real estate at a bargain. Investors account for a big percentage of buyers in the market and majority are snapping up properties with cash.

Almost one third of real estate purchases are all-cash transactions and many are discovering that they can use their IRA (Individual Retirement Account) funds to buy investment properties.

Section 408 of the Internal Revenue Code permits individuals to purchase real property using their IRA funds and almost any type of real estate may be purchased other than a principle residence or a vacation home.

Not all IRA custodians are able to allow this, however. An investor must use a self-directed IRA custodian that can facilitate real estate purchases. When buying investment real estate with your IRA, the custodian will hold title to the property owned by your IRA. Any income generated by the property will go directly to your IRA. If your IRA is a Roth IRA there are no tax consequences on the distribution. This makes Roth IRAs an attractive vehicle for owning real property, since the appreciation is never subject to any income tax.

ďItís amazing how many investors with IRA are unaware that they can use those funds to buy investment real estate,Ē says Robert Drake, SVP of First Fidelity Homes, who sells turnkey real estate investments. Many are surprised when we explain to them that they can use those IRA funds to buy these cash flowing real estate investments because most custodians do not explain to them what they can and cannot buy with their IRA. Many are led to believe that they can only invest in the stock market or mutual funds.

Now there are rules set forth by the IRS on how you can use your IRA to invest in real estate. There must be an armís length transaction and that the property cannot be used for your own personal use, nor could it be rented to your spouse, ascendants or descendants. It must be a true investment or it could be disallowed by the IRS and other penalties involved.

If done correctly, buying real estate with your IRA funds is a good way to diversify your retirement account. Of course, you still have to do your homework as to what type of real estate investment is right for you and to make sure that the investment is a solid one.

For more information on First Fidelity Homesí investment program, sign up to join a live webinar at or download a report explaining how to buy real estate for positive cash flow returns at


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