Want to buy a foreclosed home with your self-directed IRA? Learn more

Estimated reading time: 3 minutes(Last Updated On: November 30, 2018)

Do you want to buy a foreclosed home with your self-directed IRA? While many local real estate markets have improved significantly over the past several years, there are still many opportunities for investors who want to buy a foreclosed home or bank-owned property. As you might expect, the process for buying foreclosed properties is slightly different than that for buying properties from the open market. In addition, the process for buying any type of property with your self-directed IRA is also different. Here’s an overview of what you can expect if you’ve answered yes to the question: should I buy a foreclosed home with my self-directed IRA.

1. Set Up a Self-Directed IRA and Fund Your Account. The first step to buy a foreclosed home with your self-directed IRA is, of course, to set up and fund a self-directed IRA. Choose a custodian such as Quest Trust Company, which can provide comprehensive custodial services for a self-directed account, and for which you fully understand the fee structure.

2. Identify Your Real Estate Investment Goals. In order to buy a foreclosed home with your self-directed IRA, you need to identify the types of foreclosed home investments you are interested in. What are your goals when you decide to buy a foreclosed home? Are you investing in real estate in order to gain an income stream, in order to achieve long term capital gains, or both? Are you looking to take a distribution of the property once you retire, and live in it yourself? Determining your goals can help you narrow down your potential list, making it easier for you to buy a foreclosed home that meets your investment goals.

3. Identify Your Budget. How much do you currently have in your IRA, and how much do you plan to invest when you buy a foreclosed home? As you identify your budget, keep in mind that a foreclosed home will likely come with operating expenses that your self-directed IRA will be responsible for. These expenses must be met with assets from within your account, which can be either income generated from the foreclosed home itself (or from other assets within your account), liquidated assets from the account, or your annual account contributions. If you decide to buy a foreclosed home that has operating expenses, you cannot pay these expenses with your own personal funds outside of the IRA.

4. Secure Financing (if necessary). If your account balance is not large enough that you can’t pay cash when you buy a foreclosed home, your account will need to obtain financing for the purchase. Note that some banks that sell foreclosed homes may prefer (or perhaps require) a cash sale over one that’s financed. In addition, obtaining financing of this type could have adverse tax implications for your account. In general, an all-cash purchase is often the better choice when you buy a foreclosed home with your self-directed IRA.

5. Conduct Your Property Search. Only after the prior steps have been completed should you begin your quest to buy a foreclosed home. During this process, realize that foreclosed homes are often subject to a higher level of damage or disrepair due to the circumstances that brought the property back onto the market. It’s often helpful to obtain professional assistance in evaluating properties.

When you buy a foreclosed home with your self-directed IRA, you’ll often discover a very rewarding undertaking. Follow the guidelines above to put yourself in the best position to succeed.

Quest Trust Company helps change people’s lives and financial future through self-directed IRA investment education. Quest Trust Company helps people invest in what they know best and build their financial future on their own terms.