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Real Estate IRAs: Five Common Mistakes

Real Estate IRAs - Save Smarter!

The self-directed or real estate IRA is a powerful tool and growing in its popularity. However, as with any other way of investing your retirement funds, it’s not to be taken lightly.

Rental and other income property can be excellent vehicles that provide long-term appreciation potential and a steady flow of income as you work towards retirement. We spoke with Jenn Dizmang, a national speaker and former securities professional who teaches investors and real estate professionals how to properly use a real estate IRA for some advice on common mistakes that people make in the process.

Jenn shared with us that the following are the most common AND the most easily avoidable mistakes she sees people making with their real estate IRAs:

They either live in or vacation to the property that their IRA owns
They try to let family members use or live in property that the IRA owns
They don’t realize that when an IRA takes a loan, an additional tax may be due called UDFI (Unrelated Debt Finance Income Tax)
They try to lease the property back to themselves from the IRA
They try to do rehab work themselves on a property that is owned by the IRA. (You have to hire a contractor that is an unaffiliated party to perform the work!)

She mentions that all of the above scenarios are easily avoidable, yet failure to adhere to them can jeopardize the favored tax status of an IRA or other self-directed retirement plan. There’s no substitute for professional guidance, she states. But where do investors and real estate professionals looking for information on the ins and outs of real estate IRA investing go?

You can start with InvestorLoft’s previous blog entries on real estate IRA basics.

Beyond those, you can contact any self-directed real estate IRA custodian or third party administrator and they all have very robust collections of articles and information to help you “invest inside the lines.” Of course, it’s always helpful to have a real estate professional who’s knowledgeable about how to purchase real estate held by an IRA. Ask your favorite professional for their experience with the real estate IRA and if they have any resources you can speak with as well.

Special thanks to Jenn Dizmang for her insights on our blog this week! You can visit her site at www.jenndizmang.com.

The content in this blog is not affiliated with nor is it endorsed by InvestorLoft.com and contributors receive no compensation for submitted articles. All articles submitted to InvestorLoft are subject to editorial review. Please seek the advice of qualified real estate, tax and financial professionals before investing in any project or opportunity. InvestorLoft does not provide tax or legal advice and any and all content herein is provided for informational and educational purposes only.

Tags: Real Estate Investment, Real Estate IRA, retirement planning, Self-Directed IRA

This entry was posted on Thursday, June 25th, 2009 at 8:43 am and is filed under Real Estate Investment News, Self-Directed IRA and Real Estate IRA, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.