Choosing Investments - IRA Innovations

A few years ago, after the housing market decline in 2008, there were many foreclosures out there. Although the housing market is doing much better today, there are still foreclosures waiting for someone to come along who sees their potential, and there always will be in the years ahead.

Investing in foreclosure properties is a way that many people who hold self-directed IRAs have discovered for not only diversifying their portfolio, but also setting themselves up for significant possible gains in the future.

As you might expect though, the process for buying foreclosed properties with your self-directed IRA is a little different. Here, we provide an overview of factors for investing in real estate foreclosures if you’ve decided this is your next move.


  1. Make sure your account is set up and funded. Of course, the account and funds must be in place first and foremost, so work with a self-directed IRA custodian to make sure this is all in order.
  2. Decide what your goals will be. Why are you doing this, and what types of foreclosed homes are you interested in? Are you investing in real estate in order to gain an income stream sooner rather than later, or do you want to achieve long term capital gains? Maybe it’s both. Maybe you want to eventually live in the property yourself after making improvements. It could be that you are hoping to truly help others — individuals trying to keep their homes or neighborhoods as a whole. Knowing what you hope to get out of the transaction will make it easier to find the right property to purchase.
  3. Consider your budget. Look at how much you currently have in your IRA, and think about how much you want to invest when you buy a foreclosed home. Do you have enough funds? Do you need to add money to your IRA? Keep in mind that a foreclosed home is likely to come with operating expenses that your self-directed IRA will be responsible for. These expenses must be met with assets from your account. This can be income generated from the foreclosed home itself, liquidated assets from the account, or your annual account contributions. You cannot pay for these expenses with your own personal funds outside of the IRA.
  4. Remember it may take longer. Because there are many legal steps and obligations that must be met as part of the foreclosure process, it can take longer to buy a foreclosure property.
  5. There may be no appraisal or inspection. In buying non-foreclosure properties, appraisals and inspections are the norm, and often a crucial step. With foreclosed properties, however, there’s not always an opportunity for this. This is why knowing your goals and doing your research ahead of time are such important steps to take.
  6. There may be no occupants. During the long foreclosure process, there will likely be no one living on the property. It can quickly fall into disrepair, which means there may be significant expenses involved to account for this. 

Although there are many good reasons to invest in foreclosure properties, don’t automatically assume it will yield large investment returns immediately. Take all these relevant factors into consideration so you can decide if this is the right type of investment for you and your self-directed IRA.

IRA Innovations provides self-directed retirement account administration and education. As the experts when it comes to “alternative” investments including private equity, they can provide the necessary tools and information to get started with a real estate IRA.

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