Yes, You Can Buy Real Estate Overseas with Your IRA

Many Americans of or near retirement age count their IRA as their greatest source of wealth. But despite contributing as regularly as they possibly can and watching their nest egg grow, many of those same people are at a loss when it comes to deciding how to make that investment grow further.

If you’re one of those people, you may have thought a little about where you could invest your IRA but found yourself confused by all the rules and regulations associated with using your IRA—particularly when it comes to offshore investments, such as purchasing foreign real estate abroad.

Below I’ll simplify some of that information and introduce you to the Dos and Don’ts of IRAs (including how to purchase real estate with yours):

Who can handle my IRA?

It used to be that only banks, brokerage companies, and insurance companies handled IRAs. The set-up was simple enough: you gave your IRA to them and they would manage it for you. As time passed, some of these IRA providers began to allow their clients to direct their own investments, but that still meant dealing in stocks, bonds, and other traditional items, with a broker taking care of it for you. Generally, this was cheaper and you got to be in charge of your IRA money.

Shortly after the introduction of IRAs, another group of trustees came along and decided to allow clients to buy real estate and other non-traded assets with their IRAs. These became alternative self-directed IRAs.

When did it become legal to own real estate with your IRA?

It has always been legal to purchase real estate with an IRA—and it’s much simpler to do than you might expect. When you purchase real estate directly with your IRA, you don’t directly buy the real estate; your IRA account buys the piece of real estate.

That may seem like a minor distinction but it is, in fact, an important one. All the expenses of the real estate purchase must come from IRA funds to be compliant with the rules of your IRA.

There are some other things you should be aware of: To access these funds, an invoice and authorization must be sent to the custodian of your IRA who will then release the funds. And an annual market valuation of the real estate must be sent to the custodian.

By the way, you may not know this, but you can also hold a mortgage with your IRA. (That mortgage needs to be non-recourse.)

How do I choose a custodian for my IRA?

Always go with an established custodian who has a history of playing by the rules. Currently there are about 20 major custodians that offer IRAs that can hold alternative, non-traded investments (like real estate). The reason there are so few custodians is that each IRA is different and there’s a higher degree of complexity with these IRAs.

Can I buy foreign real estate with my IRA?

Yes you can—but you should be aware that it’s not as simple to do as it is in the U.S. Most foreign countries do not recognize your IRA account as a separate legal entity and therefore your IRA can’t buy the real estate.

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