How Investing in Real Estate with an IRA Works

In a Real Estate IRA, the property becomes an asset of your IRA. This means your IRA owns it. You do not own it, personally, nor can you use it for personal reasons. It’s important to stress that since the IRA directly owns the asset, the IRA holder cannot benefit from the asset. You, as the account holder, cannot live in the property or use it as a vacation home, for example. The property is held for the exclusive benefit of the IRA. Also, your IRA cannot purchase a property from you or any disqualified person.

Visit our Learning Center for information regarding disqualified persons and prohibited transactions in a Real Estate IRA. Title companies, financial professionals, and local Realtors and real estate agents and brokers who are familiar with self-directed IRAs are a good source for information.

The Real Estate IRA Purchase Process

You can purchase a number of real estate-related investments with an IRA. The process is fairly straightforward:

1. Open and fund a self-directed retirement account with The Entrust Group.

2. Identify a property and make an offer. Make sure the contract is titled in the name of your IRA as the buyer. For example, “The Entrust Group FBO Client Name Account X #555555.” Entrust signs the purchase contract and you sign as “read and approved.”

3. Complete an Entrust Buy Direction Letter and submit it with the purchase contract for Entrust’s signature. Allow up to one business day for review and processing.

Note: Before The Entrust Group can fund the earnest money deposit (EMD) for investment purchases, we must have a fully executed Purchase Contract agreement signed by both parties: Seller and buyer (the IRA).

4. Upon receipt of the fully executed Purchase Contract agreement, Entrust will fund the earnest money deposit the following business day.

5. Escrow is opened for your Entrust self-directed Real Estate IRA. When the title company is ready to close escrow, you will need these documents: 

  • Warranty or Grant Deed
  • Preliminary Title Report 
  • Estimated Closing Statement 
  • Loan Documents (if applicable)
  • Seller’s Entity Formation Document (if applicable)

6. Entrust will review the paperwork and fund the remaining balance. Allow up to three business days for review. When the paperwork is completed, Entrust will fund the next business day.

7. Once your IRA owns the asset, income and expenses for the property must flow through your Entrust account.

All legal documents related to an IRA-owned asset, such as property manager contracts, the lease or rental contract with tenants, and property insurance, must be held in the name of the IRA. Read about property management within an IRA for more information.

Earnest Money Deposit (EMD) for Good Faith

The earnest money deposit (EMD) is a payment made in major real estate transactions to demonstrate that the buyer has good faith and is serious about completing the transaction. It also implies that both parties intend to deal with each other fairly and honestly.

The amount of the EMD varies. When the deal closes, the EMD is applied to the buyer’s down payment or closing costs. However, you and the seller should have an agreement in place to determine how the EMD would be handled if the deal fails to go through.

Before Entrust can fund the EMD on a real estate purchase, all documents involved in the transaction must be reviewed and titled in the name of the IRA.