Real Estate IRA Investing

IRAs that invest in the stock market can lose value when the market falls. However, real estate almost always increases in value. While some workers have to put off retirement when their IRAs lose value, others are investing their IRAs in real estate and retiring on or even ahead of schedule.

Change the custodian of your IRA. Most banks and brokerages aren't set up to buy and manage real estate for IRAs.

Know the rules for buying real estate. These are very important, because if you use your IRA funds to buy the wrong property or commit some other violation of the rules regarding real estate and IRAs, the financial consequences could be devastating.

Remember that you can't deduct depreciation on your real estate. It's possible that the benefit to your IRA is worth the loss of this deduction on your tax return.

Avoid mortgaging your real estate. If you do, you won't be able to shelter the income generated by your real estate. Even if you only use a mortgage to pay for part of the purchase, you won't be able to shelter a corresponding part of the income from the real estate.

Make any repairs or improvements to your property with funds from your IRA only. This means that you'll probably have to have some cash value in your IRA that you can withdraw for these expenses.

Consider investing in a real estate investment trust (REIT), which lets you invest in real estate without the pitfalls of buying and managing the property yourself. Be aware, however, that the overhead costs of buying real estate this way can be considerable; they may even wipe out any income you receive from the investment.