Buy and Sell House in an IRA

Articles for the Ambitious Real Estate Investor

If you read the headlines and listen to the news you would think the world is coming to an end.  Most of the so-called issues are issues you cannot control.  I like to focus on what I can control and actively participate in by educating myself and getting a different perspective.  One of those “things” is your retirement plan.  When most people hear the words “retirement plan” they immediately think of stocks and bonds.  They think of the 401k at their employer or an IRA and don’t feel like they have any control over the outcome of the retirement plans performance, even though they have chosen their own investments.  Rightfully, most people think they just have to hope for the best since they really can’t do much about how the stock market performs. 

Well, I am here to say that the time for you to take control and use the tools the government gave you.  Remember it is your money, your future, and your plan

American’s hold a vast majority of their money in stocks, bonds, and mutual funds and in the recent financial crisis all three of these asset classes have lost value at the same time.  Many individual investors and even some money management professionals think that it may be quite a while before these financial assets deliver the kind of steady, reliable growth that they have in the past. 

It is important that you put a portion of your money in alternative assets such as real estate, notes, private loans, tax liens, precious metals, etc.  This is true diversification in contrast to diversifying into different securities which is NOT diversification at all (unlike what most financial planners tell you).  

Get Inspired

In my opinion, you need to find investments that appeal to you based on your interest, experience, and knowledge and those that meet your financial goals and risk tolerance.  Everyone is different and there are plenty of opportunities to find high yielding investments.  If you buy, fix and flip houses then this is a place to start. 

Tax Protected Investing

No one likes to pay taxes, but many people invest and forego the opportunity to reduce their tax bill by utilizing government sponsored savings plans.  No matter what you invest in, you will always come out better when you make your investments in a tax deferred or tax-free retirement plan.  These plans are designed to help you live better in retirement and are easy to setup.  The time spent will be well worth the effort. 

Example of Real Estate Buy and Sell

I purchased a single-family home in my SDIRA (Self-Directed IRA) and after some cosmetic repairs, the property was rented for a total of 6 months before the tenants purchased the property for $136,000.  This resulted in a cash-on-cash annual return of nearly 40%.  In the proper IRA account (Roth IRA) that profit of $36,200 is TAX FREE. 

Purchase price:       $91,000

Repairs:                     $5,100

Rental profit:           $10,755 (6 months)

Sales price:               $136,000

Closing costs:          $3,700

Sales profit:             $36,200

ROI                 :           39.8%

How hard is it to do such a deal?  Not hard at all.  So, get a SDIRA setup and start reducing your tax bill.  Always check with your CPA and attorney.   

Have Questions?

If you have questions about this article you can connect with Randy here.

Randy Rodenhouse
Author: Randy Rodenhouse

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