If you’re thinking about buying real estate with Roth IRA funds, let me give you a little advice. Choose the right custodian. There are many examples of a rollover IRA successfully buying real estate, but the fees charged by multiple custodians can make a big difference.
#1 – Uninvested Cash Balances
Once you start buying real estate with Roth IRA funds, you will almost always have some cash in the account. In fact, you must have some cash there, because all the costs associated with the maintenance of the property must come from the account.
Don’t think the custodians don’t know this. They take advantage. There is a great company that takes 45% of your interest earned on uninvested cash balances every year. They call it a maintenance fee, but there is no additional maintenance involved. No matter what is kept within the account, the same type of maintenance is necessary.
#2 – Additional Charges
When it comes to an accumulated IRA to buy real estate, you’ll need to have a self-directed account. You tell your custodian to write a check for a purchase. Some companies charge for writing checks. They charge for transferring titles and deeds or mortgage promissory notes. They charge a fee each time you use the account to make a purchase or sell a property. All of these fees can add up to thousands of dollars in a year.
When it comes to an accumulated IRA to buy real estate, one of the biggest advantages for investors is the ability to keep more of their earnings, due to the account’s tax-free environment. But, if a custodian charges numerous fees, they don’t get to keep as much.
Similarly, one of the biggest advantages of buying real estate with Roth IRA funds is that you will “never” pay taxes on those gains. Your contributions are taxed as regular income. There are no capital games or income taxes on winnings made within the account. Qualified distributions are never taxable.
#3 – Reasonable Annual Maintenance Fee and Installation Charge
If you have a rollover IRA, the real estate purchase can only be accomplished if you choose a custodian that offers the option. Those companies that currently offer “free and easy setup” do not offer the option. They are stockbrokers and charge large fees to buy and sell stocks.
A reasonable setup fee is $50. The annual maintenance fee depends on the total value of the account. If you’re like me, you’re looking for a million dollars or more buying real estate with Roth IRA funds. Trust me, it’s not an impossible dream.
#4 – Get an education
If you are inexperienced when it comes to buying real estate in a rollover IRA, get education and information first. There are a small number of companies that offer “hands off” investment options. That might be the best option right now.
As you learn more about buying real estate with Roth IRA funds, you’ll be able to do more. But, start slowly, just to be safe.