18 Jan Can my IRA buy an office building?

Q. I’m thinking of buying a multi-unit office building in my town. I have some cash, but not enough. Can I use my IRA to invest in this?
— Investor

A. It’s possible, but it’s not that simple.

The business you want to invest in has to fall into certain categories. You can invest in a C Corp. or an LLC, but not an S. Corp.

“There are specific rules explaining what you can and cannot do in funding and managing your investment,” said Bill Connington of Connington Wealth Management in Paramus. “Make sure you comply with all the rules. If not it could cause problems in your IRA and cause many tax penalties.”

Another challenge is that not every IRA custodian can handle these kinds of transactions.

You will need to find a company that will work with you and help you set up a self-directed IRA for this purchase, Connington said.

That will mean some annual fees that are probably larger than what you’d find with a more traditional custodian.

You’ll have other expenses, too. You may need a mortgage, and need to pay someone to help you manage the property.

And because the property would be held in the IRA, you won’t be able to write off losses or depreciation, Connington said.

“Putting your hard-earned IRA into a multi-unit property may seem to be a good idea but doesn’t work for everyone,” he said.

You should sit down with an advisor who understands all the challenges before you make a decision.

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This post was first published in January 2017.