How to Buy Real Estate with a Self-Directed IRA

Are you looking to buy real estate with a Self-Directed IRA? There are different ways to do it, and Madison Trust can find the process that’s best for you. Let’s start with the first decision – the kind of property you want to purchase – and then we’ll discuss the steps involved.

1. Choosing Your Property

This part is all up to you. Chances are you’re already considering a specific real estate investment. It could be a multi-family property, foreclosure, or even a REIT. Once you have an idea of the type of property you would like to purchase, the next step is to choose the right kind of Self-Directed IRA.

2. Choose a Self-Directed IRA Model

Self-Directed IRAs come in a variety of models and each one is suited for different kind of investments. The two most popular options are a Self-Directed IRA model and a Checkbook IRA. In addition to these, Madison Trust is now offering a third option in the form of an IRA Trust. These are new products for most investors, so it’s worth your time to discuss the options with a Specialist. In just a few minutes, you should be able to determine which Self-Directed IRA model is best for your real estate investment.

3. Opening a Self-Directed IRA Account

The next step to purchase real estate with a Self-Directed IRA is to open an account with a Self-Directed custodian. No matter which model Self-Directed IRA you chose to go with, federal law requires that the assets be held by a qualified custodian. Opening an account normally starts with filling out a few forms and then funding the account. If you’re opening a Checkbook IRA, you will also be required to establish a Trust or LLC and open a dedicated bank account.

4. Purchasing Real Estate

In a Checkbook IRA, the procedure is simple. Write a check for the property from your LLC’s checking account, and the property automatically becomes an asset of your IRA. When working with a custodian, the process is a bit more involved. In essence you’ll be filling out forms according to the guidance that you get from Madison Trust.

There are two ways you can purchase real estate with a Self-Directed IRA. One option is to send an earnest money deposit, then fund the remaining balance. Option two is to fund the full purchase, without an earnest money deposit. Here’s a quick rundown of the details of the funding process when an earnest money deposit is involved:

Purchasing Real Estate with a Madison Trust Self-Directed IRA Infographic: Part 1: Funding an Earnest Money Deposit (1) The Title/Escrow Company should prepare a Purchase contract with the buyer listed as "Madison Trust company, Custodian FBO [First Name, Last Name, MTC Account #]. You should sign the contract in the capacity that you have read and approved the documents. (2) Submit the signed Purchase Contract and our Investment Authorization Form to Madison Trust. (3) Madison Trust will review and countersign the Purchase Contract as custodian of your IRA and will issue a check or wire to the escrow agent from your IRA using the submitted Investment Authorization Form. Part 2: To Fund Full Purchase (1) Submit the rest of the closing documents which include the Settlement Statement/HUD (signed), Draft of the Deed, and if applicable the Title Policy. (2) Submit a second Investment authorization Form instructing Madison Trust to complete the purchase by issuing a check or wire to the title/escrow company. (3) The title company will submit the Deed to the local County Clerk's office for recording, who in turn will return it to Madison Trust company for safekeeping.

5. How Not to Purchase Real Estate with a Self-Directed IRA

The freedom of the Self-Directed IRA to purchase a property is one of its greatest strengths, but that freedom needs to be tempered with knowledge. The single most important issue that you should keep in mind is that of the Prohibited Transaction. Although this doesn’t come up often, when it does, it’s usually in the context of real estate. In essence, you may buy and manage the property as you see fit, but neither you nor any of your close relatives can transact with the property until you decide to retire. You can learn more about Prohibited Transactions here. Even better is to discuss your specific investment with a Madison Trust Specialist. Give us a call and utilize our experience to get the answers you need. Looking forward!

Are you looking to invest in real estate with a Checkbook IRA?

Watch this video to learn more about this process!

Ready to start investing in your future?

Fill out our form, and one of our IRA Specialists will answer any questions that you may have.
All Pages Bottom Contact Form
Corporate Headquarters:
Madison Trust Company
401 East 8th Street • Suite 200
Sioux Falls, SD 57103
Mailing Address:
Madison Administration Company
One Paragon Drive • Suite 275
Montvale, NJ 07645
Monday - Thursday: 9:00AM - 6:00PM EST
Friday: 10:00AM - 4:00PM EST
Saturday/Sunday: Closed
(800) 721-4900
[email protected]
F: 845-947-1212