One advantage to investing in real estate are the tax advantages you can get from owning rental property for investment. Today I want to talk about just one tax-advantaged strategy only about 2% of Americans actually know how to use. This strategy is for people who currently have money in a ROTH IRA.

A Roth IRA is a great vehicle to use to purchase real estate. It can be done by setting up a self-directed IRA with one of several companies that specializes in this area and transferring the money from your existing IRA account with your bank or brokerage. Over my many years as a real estate broker, I have purchased and helped many other people purchase property using IRA funds. The Roth IRA is by far the best tax-advantaged strategy I know because you can buy real estate, rent the property for income, pay no taxes on the rent and sell it at a profit with no tax due, but you will be penalized for withdrawing any investment earnings before age 59 ½ without a qualifying reason.

The withdrawal rules for a Roth IRA are:

  • If you are 59½ or over, you may withdraw as much as you want, as long as your Roth IRA has been open for at least 5 years.
  • If you are under 59½, you may withdraw the exact amount of your Roth IRA contributions with no penalties.
  • There are special exemptions for first-time home purchase and college expenses.

You may think you do not have enough money to buy real estate. In the Pensacola area you can purchase investment properties in the $50,000 to $100,000 range and up. Did you know that you can combine IRA funds with a spouse or other partner as long as the money is handled through a professional management company and the paperwork and funds are kept separate?

I discuss this and other tax-advantaged investment strategies in my new book The Real Estate Rulebook. For personal help with this strategy, you can reach me at (850) 232-2200.