Real Estate

Real property, including vacant or raw land, pre-developed property, and commercial or residential property

Tips

What you need to know about real estate before you invest.

For most real property held directly by the IRA (except vacant or raw land), the Individual Retirement Account (IRA) must have an agreement with a third-party property manager. The property manager is responsible for ensuring that all expenses, such as property taxes, insurance premiums, homeowner’s association fees and maintenance expenses are paid in a timely manner from the property management trust account.

If the expenses exceed the retained cash in the property management trust account, the property manager must forward bills and invoices to Provident for payment from the IRA*. Expenses are prohibited from being paid by the IRA owner with personal funds. If an IRA owner elects not to use a property manager, they must complete and submit a Property Manager Waiver form.

Real property can be rented to offset costs and increase value, or can be improved upon if the restrictions surrounding prohibited transactions are observed.

Common reasons investors choose real estate

You’re putting your funds in properties that you know and trust

You can move funds from one project to another

You can buy, sell, and/or flip real estate without losing the tax-deferred status of your self-directed IRA

Common risks when investing in real estate

Higher level of involvement: You are responsible for maintaining and monitoring the property itself

Lack of diversification: If you don’t have enough funds to own a range of properties, you can’t build a diverse portfolio

Liquidity concerns: It’s hard to access your cash when it’s tied up in real estate

Rules

The Internal Revenue Service (IRS) has certain rules to keep in mind when considering investing in real estate.

Owning real estate in your IRA means you lose some of the tax breaks that most real estate investors can take if the property operates at a loss. You also cannot claim depreciation on IRA-owned real estate.
Any mortgage tax breaks that you would normally qualify for will be lost when you purchase real estate with an IRA. IRAs are already tax-sheltered accounts, so you will lose out on any other tax benefits when you choose to use an IRA. If you want to take full advantage of tax benefits, then you shouldn’t use your IRA for the transaction.
Take extra precautions to ensure you avoid prohibited transactions—an IRA owner, or other disqualified person, cannot personally perform any maintenance or improvement activities related to the property. An IRA owner, or other disqualified person, may not use the property in any way that may provide a personal benefit.
Unrelated Business Tax Income (UBTI) considerations: If property is being ‘flipped,’ the IRA owner may need to be aware of potentially triggering UBTI. An IRA owner that plans to use a non-recourse loan to purchase property must be aware of potentially triggering a type of UBTI called Unrelated Debt-Financed Income (UDFI). Tax owed on UBTI/UDFI must be paid from cash held within the IRA holding the property and filed on IRS Form 990-T. If your real estate investment incurs UBTI/UDFI, consult a competent tax professional to prepare a Form 990-T and contact Provident for instructions on paying any taxes your IRA may owe.

Curious about your self-directed IRA options?

We can help

1. Open your self-directed IRA account and fund it

Register and log in to the client portal, then complete a self-directed IRA application online. Visit our Open an Account page for more details.

2. Complete the Direction of Investment Form

You can easily complete a digital version of this form through your portal, or you can email, fax, or mail us a completed Direction of Investment Form.

3. Send your supporting documentation

Along with your Direction of Investment Form, you must provide the following:

-Closing documents

-Purchase Agreement

-Preliminary Title Report

-Deed

-Lease Agreements

-Property Manager Agreement or Property Manager Release Agreement

4. Receive a confirmation

You will receive an email confirmation once your request has been processed and your funds have been scheduled to leave your account. You should perform a title search to ensure the deed has been recorded properly.

Download our Real Estate OneSheet for a quick reference on how to invest in real estate.

Download OneSheet

*To make any required payments, there must be sufficient funds in the uninvested cash portion of your IRA at least 10 days prior to the payment’s due date. If your account balance has insufficient funds, you will be responsible for any interest or penalities incurred if the bill or invoice is paid late.

You are responsible for performing due diligence on your investment. Every investment has unique risks and any decision to invest should only be made after you conduct a thorough review of the investment and any parties related to the investment. Provident Trust Group is a passive, directed custodian and as such does not provide any type of investment advice or due diligence.