By: Daniel Gleich

Key Points 

• Investing in a foreign property with a Self-Directed (SDIRA) gives you the opportunity to expand your portfolio abroad.
• Utilizing your retirement plan to invest in a foreign property comes with benefits including steady, tax-advantaged growth and retirement portfolio diversification.
• As an SDIRA account holder, you can invest in many types of international real estate including condominiums, rental properties, residential properties, and raw land.

Thinking About Investing in International Property?

One of the key advantages of utilizing a Self-Directed IRA (SDIRA) is the freedom to diversify your portfolio into a wide variety of assets. In a standard IRA, the account holder can diversify amongst stock market products (e.g., stocks, bonds, and mutual funds). With a Self-Directed IRA, the account holder can complement that diversification by expanding into non-market, alternative investments such as precious metals, private businesses, promissory notes, and real estate including international properties.

Before investing in international property, it’s essential to understand the regulations and potential considerations involved. In this blog, we’ll explore how to invest in a foreign property with a Self-Directed IRA, including common questions such as “why do investors choose international assets?” and “why do Self-Directed IRA custodians not hold foreign properties?” Then, in Part 2, we’ll explore potential considerations of foreign real estate investing and Part 3 will look at possible destinations. 

What Types of Foreign Property Can I Invest in with a Self-Directed IRA?

Like investing the U.S., you can invest in various types of real estate internationally with a Self-Directed IRA. This includes condos, rental properties, commercial properties, residential properties, raw land, and more. 

Why Would a Self-Directed IRA invest in Foreign Real Estate? Exploring the Benefits:

Potential for High Returns

Real estate provides investors with the opportunity to typically receive steadier, more predictable account growth through rental income or by the property retaining its value over time.

Expanded Diversification

Going international opens new possibilities for investing. By placing your Self-Directed IRA funds in assets in different countries, you can help mitigate potential loss. In addition, historically, real estate has been inversely correlated with standard stock market products. Adding real estate to your portfolio can typically help hedge against both economic fluctuations and stock market volatility.

Retirement Destination

A growing number of Self-Directed IRA investors wish to retire outside of the United States. You may have family who lives internationally, may be looking to take advantage of the potentially lower property prices or cost-of-living, or may just desire a change of scenery. Investing in an international property with a Self-Directed IRA can make your retirement goals happen. Distributing your property to yourself over a set number of years can allow you to live on your property.

Timely Investment

When you remove the limitations on asset choice by considering foreign real estate, you may act on a timely deal.

Tax Advantages

When you invest in real estate with an SDIRA, your funds can grow tax-free (Self-Directed Roth IRA) or tax-deferred (Self-Directed Traditional IRA), depending on your account type.

Tangible Asset

Real estate is a tangible asset, therefore it typically never reaches a zero-dollar value.

Considerations for Investing in a Foreign Property with a Self-Directed IRA

Like any investment, there is potential risk involved with investing in real estate in a foreign country. Here are a few considerations to keep in mind before investing. 

Potential Added Complexity

Investing in a foreign property can potentially involve additional complexities, including foreign currency exchange, legal and tax regulations, and managing your property from afar. 

Due Diligence

It is considered best practice to conduct due diligence to identify the right property for you. Consider researching the local economic conditions, political stability, property laws, and the rules regarding holding real estate in your Self-Directed IRA.

Possible Custodian Restrictions

Not all Self-Directed IRA custodians allow foreign property investments.

Prohibited Transactions

It is essential to avoid prohibited transactions when investing in real estate with your SDIRA. You and any disqualified person cannot directly benefit from the property (live or stay there personally, receive compensation for managing a property held by an IRA, etc.)

What Kind of Self-Directed IRA can Purchase an International Property?

Technically, any Self-Directed IRA can purchase international property. The ERISA federal law allows for the investment in an overseas asset.  

However, many Self-Directed IRA custodians will not hold foreign property on behalf of their IRA account holders. Legitimate Self-Directed IRA custodians want their investors to be safe. Foreign property is an asset that can be susceptible to fraud. Since the property is overseas, it may be hard for the investor to know if it is a viable investment without visiting. Considering this, most custodians prefer not to be involved in international real estate. 

Enter the Self-Directed Checkbook IRA

However, many investors have seen success with their international investments. One way to invest in foreign property with your retirement funds is through a Checkbook IRA.  

Instead of transactions going through your Self-Directed IRA custodian, a Checkbook IRA puts the money in your hands by establishing a pass-through entity, such as an IRA LLC or IRA Trust, tied to your IRA. You still have a custodian who manages your initial IRA funding and yearly reporting, but you are in direct control of your funds through a dedicated checking account to perform your everyday investment transactions.  

To set up a Checkbook IRA, you’ll open and fund a Self-Directed IRA with a SDIRA custodian, such as Madison Trust. Then, to gain checkbook control, you’ll establish a specialized LLC or trust for your IRA. This is usually done by an IRA LLC facilitator, such as Broad Financial, Madison Trust’s sister company. You’ll then go to the bank of your choosing to open a checking account for your checkbook IRA.  

From there, you’ll instruct your custodian to move funds from your SDIRA to your newly created checking account. Once the LLC is funded, it can purchase the foreign property as an IRA asset by simply sending a wire or writing a check. 

Conclusion: Let’s Tie It All Up

Investing in a foreign property is an exciting and potentially rewarding investment opportunity for Self-Directed IRA account holders. It can provide a generally steady flow of income, diversify your portfolio, and has the potential for high returns. However, it is important to understand the rules and potential considerations before executing the investment. To continue exploring investing in foreign property, read How to Invest in a Foreign Property Part 2 and Part 3.  

Have Questions? We Have Answers!

If you’re interested in pursuing a piece of international real estate, start by speaking with a Madison Trust Self-Directed IRA Specialist. Schedule your complimentary call today!