One of the best investments that one can make is in a house. Houses will frequently appreciate to many times their original value. However, most of us do not have the capital necessary to purchase extra houses and reap the rewards. Additionally, we can make a lot of short term profit by flipping a house, but again, we are often constrained by the amount of cash that we have on hand. However, you can legally use your IRA to purchase a house, and even end up not needing to pay taxes on your profit. This will give you the cash that you need to get started. As a caveat, this method requires a considerable amount of paperwork, attention to detail, and a good work ethic. It is definitely not a method for everyone. With that said, here are some of the steps that you will need to take in order to take an active role in investing in your future.
- Ensure that you have the funds necessary to fully fund your purchase. You will need a sizeable amount of cash in your IRA to be able to go through with a purchase.
Convert your IRA into a “self-directed” IRA. This will require some research into the best method for you, but is essential. If it is not done correctly, you will not be able to use these funds while maintaining the limited tax protection.
- Find an administrator. You will be obliged to find an administrator to serve as the custodian to your self-directed IRA. This means that there will be a third party giving oversight. Ensuring that you find a reputable and trustworthy administrator will be critical in ensuring that you do not end up making mistakes.
- Look closely at the rules. This is an area where there are many rules governing what can and cannot be done with the property. Generally, you and family members cannot live in the property. While this is typically not what you would be doing while flipping, it is important to ensure that all rules are followed. A violation could lead to huge taxes being levied on your transactions.
Some things to remember are that you need to be very cautious when examining the laws and regulations. Additionally, this is not a passive investment. It will require your time and energy. If you are not willing to give this the attention that it will require, you will not be able to make the money that would otherwise be possible.