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Real Estate

Real estate is land, buildings or structures on the land, and natural elements attached to the land, such as trees, minerals, and water. It does not include personal property, such as vehicles or equipment, that is not attached to land.

What is a Real Estate Investment?

Real estate is a broad category of investments that allows an investor to diversify their portfolio beyond the traditional stock and bond options tied to the stock market. Investors may further diversify their holdings within the real estate investment category among the different types of real estate and various ways to purchase ownership rights in real estate. Depending upon the type of real estate purchased, there is also more than one way to grow the value of the investment. In addition to property value increases intrinsic to the real estate market, values may increase as a result of improvements made to the property and/or when the property is used to generate income (e.g., commercial leasing).

Examples of Real Estate Investments

  • Single family homes
  • Multiple family residential complexes
  • Commercial and industrial properties
  • Rental/lease income property
  • Undeveloped land

What Are Some Ways to Invest in Real Estate?

Investors have several options for purchasing real estate with IRA assets. They may own the entire interest or may choose to pool their assets with multiple investors to create greater buying power. Examples of ways to invest IRA assets in real estate include:
  • Purchasing an entire parcel of property with IRA assets for 100% direct ownership by the IRA
  • Purchasing a partial interest in real estate by partnering with another IRA, a private party, or a business
  • Using IRA assets as a down payment and obtaining a non-recourse loan to purchase real estate
  • Purchasing shares in an entity that has underlying ownership rights in real estate, such as a partnership, or a single or multiple member Limited Liability Company (LLC)
  • Investing in mortgage notes and trust deeds by lending IRA assets to a borrower in exchange for loan repayments, plus interest, and ownership rights following default and foreclosure
  • Purchasing shares of a real estate investment trust (REIT)

What to Consider When Investing in Real Estate

Investors using their IRA to purchase real estate must understand all IRS regulations associated with IRA investments. Investors should review all requirements with their CPA to ensure the proposed real estate transaction complies with IRS Code 4975 and is not considered a prohibited transaction because of the parties involved or the structure of the investment. The IRA must pay all expenses associated with a real estate investment, and certain individuals, including the IRA owner, cannot use, maintain, or provide services to the property while the IRA has direct or indirect ownership interests. Additionally, income-producing real estate or ownership in an LLC or other business entity may subject the IRA to paying tax on Unrelated Business Taxable Income (UBTI) in the year it is earned.

How to Buy Real Estate

Investors are encouraged to do adequate research or contact a broker/financial advisor, attorney, or CPA to determine if real estate in general and a particular property is an appropriate investment. Once you have determined that a property is suitable for you, it can be purchased with your Self-Directed IRA or other retirement account at Mainstar Trust. Click here to find out how to use a Mainstar Trust account to invest in real estate.