Buying a House Within My IRA
I’ve taken the plunge. I’m in the process of buying a house within my IRA. (I’d debated a house vs. a condo a while back, and had come down squarely on the side of “no idea what I’ll do”.)
Originally I’d thought I would look for either a house to flip or a condo to rent out, but the price point I had in mind made that a no-go for this area. Instead, I’ve made an offer on a house to renovate, hang on to, and rent out — and the offer was accepted. (That’s the house, pictured above.)
What I’ve learned so far
The main thing I’ve learned so far is that it’s a whole lot slower to buy a house using a self-directed IRA than it is to just buy a house. That’s because in order to avoid running afoul of the IRS rules (and disqualifying your IRA, ouch) everything is run through a custodian.
That means that the custodian has to sign all of the zillions of agreements and disclosures required, not me. And of course, it takes them time to do so. So while my IRA is doing a cash purchase, it’s actually felt more complicated than when I’ve personally bought real estate with a mortgage. The process is s-l-o-w, and requires patience on the part of all participants — especially vendors who have to fill out their invoices in a certain way and wait for a check or wire transfer to be sent to them from the IRA. So, you’re less likely to get the kind of deals you might be able to when using cash outside of an IRA.
The house my IRA is buying is a 2bedroom with a detached garage in a nearby city. It’s also pretty old (built in the 40s), currently leased at a good rate (woohoo!), in a good location, surrounded by houses that look better than it does, and at a bargain-basement price.
The downside? It’s got a LOT of issues, and it’s being sold as-is. (Hence the price.) The issues are kind of huge too, and several of them will need to be addressed immediately after closing. Then there will be more items (such as re-doing the only bathroom) that will need to be addressed not too far down the road. All that presumes they don’t find any unpleasant surprises while doing the work, which wouldn’t be unheard of in a house of this type and age.
But, I’m hopeful this will turn out well. Obviously I believe it will be a good investment, especially based on the rent it’s currently getting. Time will tell. I’ll keep you posted :)