Real estate and self-directed IRAs

By Laura Bruce • Bankrate.com

If you're tired of being limited to the typical lineup of stocks, mutual funds, bonds and CDs that most brokerages allow you to buy in your IRA, you might consider creating a self-directed IRA that enables you to invest in real estate.

The addition of real estate can diversify a portfolio and, to be sure, buying actual property to be held in your IRA is just one way to do it. The process is not terribly complicated, but as with any retirement account, you must follow the letter of the law or face penalties from the IRS. Additionally, unlike the run-of-the-mill self-directed IRAs that allow you to invest in the aforementioned stocks and bonds, a self-directed account that holds real estate arguably requires considerably more work on your part. It is also a much higher-risk investment.

In his book, "The No-Nonsense Real Estate Investor's Kit," Thomas Lucier writes, "... the real estate investment business is full of four-letter words such as: hard, work, risk and loss."

If you don't know much about real estate, if you're not willing to do a lot of so-called "due diligence," and if you're not financially or emotionally prepared to handle significant risk, don't attempt this. Sure, you can make painful mistakes in the stock market, but, generally speaking, your investments are liquid and you can cut your losses quickly if you feel it's necessary. The real estate market is not as forgiving.

Read the rest of the article at: http://www.bankrate.com/baw/news/ira/20070417_real_estate_self-directed_IRA_a1.asp