Land IRA
4 Things to Keep in Mind When Buying Land in an IRA
1
Use of the Land
The land must be for investment purposes only. IRS regulations prohibit personal use of the land.
2
Ownership
You can own 100% in your retirement account. Or, you can split ownership with yourself using personal funds or another investor.
3
Loans
Midland is not a lender. What we do is help investors use their funds creatively, including retirement funds, to invest in real estate.
4
Long-Term Plans for the Land
If you are looking to buy and hold the land, you probably want to open an IRA with us. If you are looking to develop the land, you may want an LLC. We do both!
Types of Land Investments
Raw Land Investments
Long-Term Holdings
Your IRA purchases the land, and you can resell when property values increase, providing a good return. There is the potential for economic growth, urban sprawl, or large corporations to build nearby. Any of these would increase the land’s value.
Speculative Holdings
Your IRA hopes to receive the same gains as with long-term holdings. However, these gains happen in a much shorter timespan. As with long-term options, these holdings require minimal effort. The cost of maintenance or upkeep is low.
Development and Subdivision Potential
These investments can be tricky but lucrative if the timing of the purchase and potential returns align with the stars. As this category indicates, land can sell in parcels rather than one giant tract. Savvy investors might be able to obtain significant returns using IRA funds to invest in land.
Farmland Investments
Farmland is generally considered a viable investment vehicle. It’s potentially a fixed resource that provides the means to grow and harvest crops, raise cattle, chickens, and other critical food sources. The risk in these investments can be minimal and provides stable returns. Farmland investments offer a hedge against inflation and stock market assets.
Land Investment FAQs
Can I build on the land?
The IRA holder cannot use personal funds to build on land owned by their IRA. However, they can use IRA funds for this purpose. When an IRA owns real estate, the IRA must pay all expenses. These expenses include property taxes, HOA dues, and construction costs.
Can I live on or use the land?
No. The IRA holder and his/her family cannot use the land owned by the IRA. The land must be for investment purposes only.
Can I sell the land?
Yes. The IRA can sell the land at any time. All sale proceeds flow directly into the IRA without any taxation.
Can I sell the land to myself when I want to use it?
You cannot buy property from your own IRA. However, the land can be taken as a distribution once you are 59 ½ years old. The property is quit claim deeded into the IRA holder’s name. This assignment is a taxable event. When the IRA no longer owns the land, the owner may use it as they wish.
Can I sell the mineral rights to my land? Can my land be used for an agriculture preservation program?
Yes. However, as the landowner, your IRA would be paid directly for the proceeds for such transactions. Selling mineral rights or agriculture preservation is a tax-deferred transaction and considered a dividend of the investment.
Who is listed on the deed?
The IRA will be the real estate owner and, therefore, is the entity listed on the deed. The IRA is required to pay any expenses related to the property and acquires any proceeds generated from the investment.
Can I work the land myself?
Unfortunately, the IRS prohibits disqualified persons from providing service to IRAs. Disqualified persons are the IRA holder, their spouse, ancestors, and decedents. Also, any entity in which a disqualified person has an ownership of 50 percent or more disqualifies.
What are the purchasing options? Do all funds need to come from the IRA?
IRAs can purchase land in three ways. First, the IRA can buy 100 percent of the property. Second, the IRA can partner with other individuals or IRAs. Third, the IRA can use leveraging with non-recourse loans.