How to Purchase a Rental Houses with an IRA

Using IRA funds to buy rental property can help build personal wealth.
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Diversifying your income can help to reduce financial hardship. One way to diversify is to buy a rental house. The income from tenants can be a source of sustainable income over years. For those with individual retirement accounts, the solution might be as obvious as withdrawing from it for the purpose of purchasing a rental house. An IRA is a collection of investments that can be purchased by anyone younger than 70½ who earns a taxable income. Using IRA funds to finance a rental property has administrative burdens, and it's important to stay within those guidelines to avoid taxes and penalties, according to the Internal Revenue Service.

Step 1

Choose a self-directed IRA custodian by searching online, through the phone book or by asking recommendations of the institution holding your IRA. Custodians work with title companies and handle the purchase paperwork and manage your property.

Step 2

Consult with your IRA custodian and move IRA funds to her control before purchasing a property. Your IRA custodian will be the buyer acting on your behalf. All expenses related to, and income from, the rental house will be handled by her.

Step 3

Open an escrow account while due diligence and legal investigation about the property's history is being conducted. This keeps good faith and down payment money safe until the property is closed on.

Step 4

Sign the purchase contract once everything has been settled and both parties are in agreement. At this point, all documents under your name pertaining to the purchase will be forwarded to your IRA custodian.

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