Can Your IRA Own An Office Building? [EPISODE #239]
Can you buy an OFFICE BUILDING in your self directed IRA or 401k? I’ll bet you think the answer is YES, don’t you? Actually, it’s only MAYBE. I’m Bryan Ellis. I’ll tell you why right now in Episode #239 of Self Directed Investor Talk…
Hello, SDI Nation! Welcome to the podcast of record for savvy self-directed investors like you where all we ask is 7 minutes a day… and what you get in return is self-directed investing MASTERY!
A great show is in store for you today and I’d like to remind you that you can ALWAYS get to the show notes for any show by putting the episode number after the domain name SDITalk.com. For today, the show notes page is SDITalk.com/239… and you really should check it out. You doubtlessly hear me referring to articles, studies and links from time to time in this show, and all you’ve got to do to get access to all of that EXTRA SDI-goodness is to visit the show notes page where you’ll find the show itself, a full transcript, and all of the resources I just mentioned. Again, today’s show notes page is SDITalk.com/239.
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Ok, so can you buy an office building in your IRA?
This question was prompted by an article I saw where a rather conventional financial advisor struggled to answer this question correctly, so I’ve decided to grace you with the actual CORRECT version of things.
The simple answer? YES. Your IRA can own an office building. There’s nothing in the law governing IRA’s – unless it’s changed dramatically in the last 24 hours – that prohibits your IRA from owning real estate, commercial buildings included. Same for 401k’s – they are absolutely allowed to own real estate.
But there’s a BIG BUT – that sounded a little vile, hmmph – there’s a big EXCEPTION to consider, which is:
Many commercial properties are owned by a business entity of some sort – such as a corporation or LLC. And it’s that entity which owns the real estate, and all of the accoutrements necessary to make that building a productive asset, like office equipment and such.
So the real question to ask yourself is: Am I buying real estate, or am I buying a business entity that owns real estate.
Still, one would think that there’s no problem, because just as the tax code governing your IRA doesn’t prevent your IRA from owning real estate, it also doesn’t prohibit your IRA from owning business entities.
So we’re good, right? If the building is owned by an entity, just buy the entity, and it’s all good… right? Your IRA can just buy the entity that owns the building and you’re all set… right?
You’d certainly think so since neither real estate nor business entities are on the short list of totally prohibited asset types. (Incidentally… do you know the things that ARE on the totally prohibited list of asset types? You can find out on the show notes page at SDITalk.com/239. Yes, that’s a shameless plug to get you to visit the website.)
What Assets Are Totally Prohibited In Your IRA?
There are practically no limits on the types of assets you can purchase in your self-directed IRA. In fact, the law that created the IRA – ERISA – stipulated only two types of assets that would be fundamentally prohibited in an IRA:
- Life Insurance
These are the only assets specifically prohibited by the law for your IRA.
So can your IRA buy the entity that owns that building?
Well… maybe. Probably, even.
But if the entity that owns the building happens to be an S corporation, then your IRA is kind of out of luck, even though the Employee Retirement Income Security Act of 1974 – better known as ERISA – the law which created the IRA, certainly doesn’t prohibit it.
But it’s problematic nevertheless. Under the law that created S corporations on the federal level, there are some limits to who can own shares in S corporations. I’ll link to the relevant materials for you on SDITalk.com/239 but bottom line: IRA’s are excluded from that list.
Can Your IRA Buy An S-Corporation?
YES, it can! But it's very problematic, and may be more trouble than it's worth so...
So, in this, as in everything where rules and regulations are concerned… reality is a bit more nuanced than any of us would like it to be.
But there is a type of real estate I know you CAN own in your IRA… and that is TURNKEY RENTAL PROPERTY! You can learn more about that by calling my 24-hour free recorded info line at 773-TURNKEY, 773-TURNKEY.
And a quick note – for any of you out in the Bay Area of California, well into Silicon Valley and surrounding areas… be sure to listen to the RADIO version of Self Directed Investor Talk every day at 3:00 pacific on KDOW 1220, the Wall Street Business Network! Those of you NOT in the Bay Area can listen in very easily too, through iHeartRadio… just stop by the show notes page at SDITalk.com/239 for a link to KDOW’s live feed on iHeartRadio.
And YES… we’ll likely be in more markets very soon, like as in the first quarter of 2017, so very soon.
My friends… thanks for joining me and remember: Invest wisely today, and live well forever!
Bryan Ellis is host of Self Directed Investor Talk, America's #1 radio show and podcast for affluent self-directed investors. He's also an expert in self-directed IRA's, solo 401k's and turnkey rental property investing... at least, that's what his wife tells him 🙂 He's a contributor to well-respected publications like TheStreet.com, Entrepreneur and ThinkRealty. Bryan lives in metro Atlanta, Georgia with Carole Ellis - his wife, business partner and best friend - and his 4 children ranging in age from 2 to 19.