Nathan Foran used his self-directed IRA to buy a dilapidated foreclosed house in Richmond for $25,000 cash. Another $25,000 to $35,000 from the retirement account will go toward fixing up the property. He then hopes to rent it out for about $1,000 a month, money that will go straight into his retirement account.
Foran, 40, a San Anselmo real estate broker and investor, sees a lot of advantages in investing in real estate through his individual retirement account.
“The net rental income goes into the IRA, so it’s generating money tax deferred,” he said. “Once I sell, the money also goes directly into the IRA without capital gains tax. If I hold onto it for five to seven years, it probably will be worth in the low $200,000s, so I’ll get a sizable gain. If I find another property I think will appreciate faster, I can sell this and use the funds to invest in that one. The IRA is a good long-term investment tool.”
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