The Power of IRA’s and 401(k) Plans to Invest in Real Estate

By Hubert Bromma, CEO, The Entrust Group.

hughSelf Directed Real Estate IRAs and 401(k)s have been in existence for almost thirty years.  These are the same IRAs and 401(k)s which everyone is familiar, with a small but important twist: These plans have an investment discretion section permitting investments in real estate, notes, options, leveraged property and much more.  You can transfer any non-self directed IRA to a self directed IRA, or amend and restate an existing 401(k) plan to one which permits self direction easily:

• Find a third party administrator or a trustee in a location near you offering such diversification.
• Then you can have them go through the simple process of transferring. If you have an old 401(k) where you used to work, you can directly roll those funds over to a self directed IRA.
• You can also establish a new Individual 401(k) with new generous contribution limits if you are in business for yourself.
• And those of you with Defined Benefits plans, just amend and restate.

Now you ready to make a number of real estate investments to build your real estate business.

1. Invest in real property directly: Use your IRA and or 401(k) funds to invest in an investment property directly. You direct the trustee to make the investment in your choice of property. You see a property coming on the market that you feel will appreciate, buy it with your IRA.
2. OPI: Combine your IRA with Other People’s IRA funds so you can make larger purchases or a single purchase of a larger dollar amount, be it a single family, apartment complex or condos.
3. OPM and OPI combined: You can combine your IRA, OPI and Other People’s Money (OPM) to acquire the investment property that you and yours want. Each person receives an undivided interest in the property. All income is allocated directly in relationship to the amount invested by each person, IRA or 401(k). You can even include family members, as long as the transaction closes simultaneously.
4. Leverage the investment: Yes, you can have leveraged property in your IRA or 401(k).  The loan must be non-recourse to you as an individual, and yes there are lenders who do this.  Some community banks and savings associations who are portfolio lenders will make non-recourse loans on investment properties.  There may be a tax on the income on the amount financed, but the overall effect can be a real advantage to your IRA. 401(k) plan acquisition debt is not subject to any other tax, except when you receive it from your plan.
5. Set up LLCs or Land Trusts: Fund them with your IRA or Plan funds. Your IRA or 401(k) can own interests in Limited Liability Companies or be beneficiaries of Land Trusts. These entities can then purchase investment properties.
6. Be a lender: Your IRA and 401(k) or other plan can lend to anyone, who isn’t your ascendant, descendant or spouse thereof. If you have a client that needs a purchase money second, use your IRA or plan funds to make that crucial loan to make your deal.
7. Finance other Peoples Commissions: If someone needs cash now, you can have your IRA or plan buy the commission.
8. Construction Loans: Your IRA or Plan can be a builder.

These are just a few of the methods and transactions you as can do with your IRA and 401(k) funds.  In all cases, all income goes into your account and expenses are paid from your account. Some of the expenses include those things associated with your property or other asset, such as accounting, property management, legal, maintenance and marketing fees. It is an additional source of cash to make your real estate business grow!

For over 25 years, Entrust has worked with thousand of individuals who elect to self-direct their IRA or 401 (K) to acquire alternative investments such as real estate and other related assets. For more information on how self-directing your retirement plan works, or to find a local representative near you, log onto their web site at

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