Many of our PACIFICO property owners purchased their residence with their Self-Directed IRA.
Susan Meyer, our Sales Manager at the PACIFICO Sales Gallery is very familiar with the sales process and requirements to assist U.S. buyers who are interested in purchasing a residence in PACIFICO with funds from their self-directed IRA.
6 Steps to a Self-Directed IRA Investment
STEP 1: Establish and Fund an account with Equity Trust Company
For most accounts, all you’ll need is a signed application, copy of your driver’s license, and method of payment. To fund your account, deposit new cash or move funds from an existing 401(k), IRA or other retirement savings plan to your new account with Equity Trust.
Rollovers and transfers can take time so it’s important to initiate funding immediately. Investment opportunities come and go quickly and preparation is everything.
STEP 2: Identify Your IRA Investment
After you’ve identified your preferred investment and are ready to make a purchase, complete our simple direction of investment form with details about the investment; such as how much it costs, and where to send the funds – and we’ll take it from there.
Before investing make sure you know and understand self-directed IRA rules and regulations.
STEP 3: Ensure Correct Title of Your IRA Investment
You and your IRA are two separate entities, and as such, the investment needs to be titled in the name of your IRA and not you personally.
The correct title for most real estate IRA investments is:
Equity Trust Company custodian FBO (for benefit of) YOUR NAME IRA
STEP 4: Request Funds to Purchase IRA Investment
Once we review and process your direction of investment form, we send funds from your IRA to purchase the investment per your instructions. For safekeeping, we retain all important records like deeds, notes, and operating agreements.
STEP 5: Maintain Your IRA Investment (How Income and Expenses Flow)
All payments/profits related to an investment in your self-directed IRA must be made from your IRA and return to your account. In addition, all expenses related to your investment must be paid from your self-directed IRA.
STEP 6: Sell Your IRA Investment
Negotiate the sales terms and complete an investment form instructing us to sell on behalf of your IRA. Proceeds from the sale return to your self-directed IRA tax-deferred or tax-free, available to you again for future investments.
Real Estate IRA FAQs
Q: What are the differences between buying real estate for myself, personally, and purchasing a real estate investment for my IRA?
There are four main differences between purchasing real estate for yourself and for your IRA:
- Title – When purchasing an asset for your IRA, it must be properly titled to your IRA. Specifically, it must read “Equity Trust Company Custodian FBO [Your Name] IRA.” Equity Trust will not accept any investments that are not properly titled.
- Funding – When purchasing an investment (or any portion of an investment) for your IRA, funds must come directly from your IRA. Equity Trust will send the funds directly to the title company/closing agent/attorney per your instructions.
- Expenses/Income – Any expenses associated with your IRA investment must be paid from your IRA and any income received must be returned to your IRA.
- Signatures – Documents pertaining to your IRA investments must be signed by Equity Trust, serving as custodian on behalf of your IRA.
Q: Can my IRA purchase real estate that I currently own?
No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person (this includes you and family members of lineal descent).
Q: Can my IRA purchase real estate that my corporation, partnership, or LLC owns?
No. This would also be considered a prohibited transaction (see IRC 4975).
Q: May I live in or work in a property that my IRA owns (e.g., personal residence, retirement or vacation home, office)?
No. This is considered a prohibited transaction (see IRC 4975).
Q: How do I pay funds to the seller?
You complete an investment form that instructs Equity Trust where to send the funds from your account. Typically, funding to purchase real estate is sent to a title company, attorney, or escrow agent. Funds can be sent by check, cashier’s check, or wire.
Q: I plan to purchase a rental property with my IRA. Does the rental income have to go back into my IRA?
Yes, all income generated by an IRA-owned property must return to your IRA. This ensures that you retain the tax-deferred or tax-free status of the investment.
Q: How does the rental income actually get into my account?
Rental payments are sent to Equity Trust for the benefit of (FBO) your IRA. The checks or money orders should be made payable to:
“Equity Trust Company Custodian FBO [Your Name] IRA #xxxxx.”
Once received, the checks or money orders are deposited into your IRA. All checks must be sent to Equity Trust with a payment coupon.
Q: Can my IRA invest in a newly formed entity (e.g., limited partnership, limited liability company, C corporation, land trust) that will invest in real estate?
Yes. Investments in newly-formed private entities are not prohibited under the Internal Revenue Code, with the exception of subchapter S corporations.
Q: Can my IRA purchase an interest in a subchapter S corporation?
No. IRAs are not qualified as investors in subchapter S corporations (please see IRS Letter Rulings).
Q: May I use funds from my IRA to renovate property in order to sell it at a higher price?
Yes. However, your IRA must pay all expenses associated with a property that it owns, including renovations. Further, all proceeds from the sale of the renovated property must be deposited into your IRA.
Q: How do I sell a property owned by my IRA?
When you’re ready to sell a property that’s owned by your IRA, you need to request the original documents from Equity Trust. This is done by completing an investment form.
Once the property has been sold, all funds from the sale must be deposited into your IRA. These funds must be sent to Equity Trust with a payment coupon.
Q: When I sell a property owned by my IRA, may I keep a portion of the proceeds and send the remaining portion to Equity Trust?
No. All income generated from the sale of a property owned by your IRA must be deposited directly into your IRA.
For more information about purchasing a property in PACIFICO using your IRA, we recommend that you contact our Sales Gallery to select the perfect residence and then we’ll refer you to Equity Trust.
Start planning to purchase a residence with your IRA by contacting us today!
For more information call us at +506.2670.2212 or email us at firstname.lastname@example.org.