HOW TO INVEST IN MULTIFAMILY PROPERTIES WITH AN IRA?
“Now, one thing I tell everyone is to learn more about real estate. Repeat after me:
It provides the highest returns, the least risk, and the greatest values."
- Armstrong Williams
With real estate being one of the most profitable asset classes, an ever-increasing number of investors have been purchasing multifamily properties with their IRAs.
And if you are wondering whether it’s actually possible to purchase real estate properties with your IRA, then let me assure you that the answer is 'YES.' You can easily fund your real estate investments with a self-directed IRA.
When it comes to IRAs, financial assets such as bonds, mutual funds, exchange-traded funds, stocks are the usual investment suspects. Here, the custodians allow investors to invest only in the kind of assets that they usually sell, which is why you can’t purchase a multifamily property with a traditional IRA.
A few of the reasons why the real estate asset class isn't a part of the traditional IRA include:
Unfamiliar with creating revenue associated with real estate
No willingness to deal with Form 5498 annual asset valuations
Avoidance of administrative burdens like deeds, closings, property taxes, insurance, etc.
For those who want to purchase a multifamily property with an IRA, what they should be familiarizing themselves with is nothing but the concept of a 'Self-Directed IRA.'
It's not some special kind of IRA that magically allows investing in real estate. Instead, here, you'll need a special custodian.
This custodian won't be selling any investments. Instead, their role will be limited to being an administrator. And that's the reason you can self-direct your investment decisions with a self-directed IRA.
Unlike the management/advisory fees or commissions charged by traditional custodians, here, your special custodian will charge administrator fees. While the fees will vary, you may expect the average amount to be around $300 each year, along with small transactional fees.
Here’s Self-Directed IRAs definition to help investors gain a better and clear perspective:
“A Self-Directed IRA is nothing but a traditional IRA or Roth IRA where an investor works with a special custodian who acts as an administrator and permits various investments allowable in retirement accounts.”
Let’s look at how one can invest in multifamily properties with a self-directed IRA.
How to Invest in Multifamily Properties with a Self-Directed IRA?
Following are the steps to be taken into consideration:
Get in touch with a Specialized Self-Directed IRA (SDIRA) Custodian.
Move Your Funds to Your Self-Directed IRA
Carry Out Thorough Market Research & Look for Investment Opportunities
Work Closely with Your Custodian to Proceed Forward with Your Investment
Get in Touch with a Specialized Self-Directed IRA (SDIRA) Custodian
At this point in time, you may probably have a traditional IRA or a 401(k) retirement fund. And you obviously can’t use it to fund your real estate investment venture.
So, the first step you need to take is to find yourself a reliable self-directed IRA custodian.
Most investment advisors or brokerage firms won't reveal the wide range of outstanding benefits of switching to a self-directed IRA. They all prefer to keep it a secret. But that's not the case with us.
We want you to hunt yourself a special custodian that will love nothing more than helping you invest in multi-family properties the right way.
However, while doing so, here’s a list of some personalized tips we’d like to shoot your way:
Look at the reviews. Ask well-established investors around.
Confirm and re-confirm whether the custodians you are interacting with are actually custodians and not just administrators or facilitators.
Learn whether the custodian you are looking at is a real estate expert. Look at their portfolio and make a decision accordingly.
Request self-directed tax rules to ensure that they are well-versed and familiar with the latest rules and regulations.
Move Your Funds to Your Self-Directed IRA
Once you appoint a custodian, you can open yourself a self-directed IRA account and add money into it with a transfer, rollover, or distribution.
Stay in touch with your custodian at all times to make sure that your funds are being placed in the right manner and choosing the fund-moving way that’s highly appropriate for your retirement account situation.
Carry Out Thorough Market Research & Look for Investment Opportunities
Most passive real estate investors, prior to investing in real estate, carry out thorough market research and look for the best investment opportunities. Remember – the deal-maker will be investing your hard-earned money on multifamily real estate properties.
So, it’s critical to make sure that you are in touch with someone who’s efficient and knows his way around. Look at their past investment portfolios and learn how profitable their investments have actually been.
This will help you understand what you are getting into.
And once you have everything finalized, you can proceed forward with actually investing in multi-family properties.
Work Closely with Your Custodian to Proceed Forward with Your Investment
Now, it's time to finally make your investment. While doing so, make sure you are closely working with not just the deal-maker but also the custodian as well. You'll first-of-all have to get approval from the custodian.
It may end up taking some time, but you can keep the deal-maker in the loop.
After receiving the approval, proceed forward with the investment and fill and submit all the required documentation. Remember – this documentation needs to be signed by the custodian. And once done, all the parties can finally close the deal.
Conclusion
Investing in multifamily properties with an IRA is easy. However, the first thing we'd advise you to do is familiarize yourself with the ins and outs of investing in real estate using a self-directed IRA. Also, there are a few rules you should keep in mind to make sure that you don't face any complications.
And once you are well-aware of all of it, you can work with your custodian and look for a multifamily syndicator to look for some outstanding investment opportunities.
Ready to passively invest in multifamily real estate? Contact us today to learn more.