What have you always wondered about the economy? Tell Us
Makin' Money

A troublesome brew: IRAs, speculators and real estate

Chris Farrell Feb 9, 2011

Did you know that you can buy a house with an IRA? You can if it’s a so-called self-directed IRA. Equity Trust, an Ohio-based custodian of self-directed IRAs, has seen an 82% increase nationwide in IRA realty purchases since 2008. Little wonder much of it is in distressed property.

Foreclosed homes and other distressed properties are attracting speculators. But for a number of reasons it’s a bad idea to tap an IRA to buy real estate–really to speculate in real estate. Kiplinger’s runs through them, starting with losing the traditional tax advantages of owning, such as deducting mortgage interest from taxes to the difficulty of financing the purchase.

You might have to pay all cash to buy. The takeway?

For most people, purchasing distressed property works much better outside a retirement account. You can borrow at a low interest rate, enjoy the interest and depreciation deductions, and benefit from capital-gains rates when you sell.

There’s another general lesson. If you want to speculate, don’t do it with your retirement money.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.