To get started, the first thing you need to do is open a self-directed account and transfer or roll over funds from your existing retirement plans. When you find a piece of real estate that you would like to purchase, you direct your administrator to purchase the property within your IRA, just like you do when your IRA invests in mutual funds. You are not taking a taxable distribution from your IRA; you are simply making an investment within it. All the income from the investment goes back into your IRA, and all the expenses, such as maintenance and property taxes, are paid from the IRA.
The opportunity to invest tax-deferred, or even tax-free, through your retirement plan comes with some restrictions. Because the purpose of these accounts is to save for your retirement, you cannot use them for a current benefit. A current benefit would include using a property owned by your IRA as a vacation destination or second home. In addition, it is prohibited for your IRA to buy property from, sell or lease property to, or extend a loan to you or any disqualified person. Disqualified persons include you, your children, your parents, your spouse, and any business or trust owned or controlled by these people.
There are several ways you can approach investing in property with your retirement funds:

• Invest in real property directly by purchasing it with your IRA. The holder of the title is your IRA.


• Partner with your IRA. You can divide an investment according to each investor’s contribution. You can partner with your personal funds or other people’s IRAs or personal funds. This is a good method to use if the purchase amount exceeds what you have in your retirement fund. Each investor receives an undivided interest in the property, and all income is allocated directly in relationship to the amount invested by each person or IRA. You can even include yourself or family members as long as the transaction closes simultaneously.


• Leverage the investment. You can have leveraged property in your retirement account. The loan must be nonrecourse to you as an individual. There may be a tax on the income on the amount financed, but this still can be an advantageous and worthwhile option.


• Set up a limited liability company (LLC) or land trust. Your IRA or plan can own interest in LLCs or be a beneficiary of land trusts. These entities then can purchase investment properties. This can be particularly advantageous when purchasing property offshore.