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 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 Custodian model and a Checkbook IRA. In addition to these, Madison 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. Here’s a quick rundown of the details: 

  • The realtor or Title Company should prepare a Purchase Contract with the buyer listed as “Madison Trust Company, Custodian FBO [Your Name & MTC Account #]”. 
  • Submit the signed Purchase Contract and an Investment Authorization form to Madison Trust.  
  • Madison Trust will countersign the Purchase Contract as custodian of your IRA and will issue a check or wire to the escrow agent from your IRA. 
  • Submit the closing documents prepared by the realtor or attorney. These can include the Settlement Statement/HUD, Draft of the Deed, and Title Policy (if applicable.) 
  • Submit an Investment Authorization form instructing Madison Trust to complete the purchase by issuing a check or wire to the closing agent. 
  • 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 Specialist. Give us a call and utilize our experience to get the answers you need. Looking forward! 


For more information about Self Directed IRAs call us at 800-721-4900 or schedule an appointment with an IRA Account Specialist.

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Getting started is easy

1

Speak with a specialist

You’ll be asked a few simple questions to make sure that a Self Directed IRA is your best option.

2

Open an Account

Madison will guide you step-by-step through the process, including any necessary transfers.

3

Invest

Your funds will be invested directly into the asset of your choice.


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