3 Ways to Buy Investment Real Estate at Auction with a Self-Directed IRA

May 18, 2020 Blog No Comment

Whether the auction is live or online, the goal is still the same – acquire the real estate at a fraction of the price.

Once you have identified and completed your due diligence on the property, getting your financing in order becomes the top priority. Knowing the top dollar you are willing to bid and determining the subsequent state or municipality funding/bidding requirements, will determine the funds needed to attend the auction and successfully purchase the property.


The reason you need to have these details outlined prior to the auction is because most foreclosure auctions only accept cash, bank money order or cashier’s check for payment. In some states, you’ll have to pay in full immediately following the auction for the property; a few states allow you to pay a percentage at auction and the rest within a certain timeframe. County foreclosure auctions often require advance deposits. The deposit amount varies across municipalities, but generally runs from 5% to 10% of the expected final bid amount of the property.

But what if you want to purchase the investment property using your self-directed IRA?

The common misconception is that you can’t, since auction purchases requires proof of funds (cash, bank money order or cashier’s check) which can take time to obtain from the Custodian (Preferred Trust Company).

The truth of the matter is you CAN purchase investment properties at auction using your self-directed IRA – here’s how. Communication is key! It is important to make your Custodian aware of your intentions to purchase at an auction. If you communicate the date of the auction and complete an investment direction form, a cashier’s check can be obtained on behalf of your IRA within 24 hours.

Depending upon the state or municipality you may need additional funds to complete the transaction, if you win the bid. This process can be completed within the allotted timeframe by the Custodian. If you do not win the bid, you must return the cashier’s check to the Custodian within ten (10) days from the auction date.  If you are unable to return the cashier’s check to Preferred Trust Company you can request that Preferred Trust Company make a redemption of the funds from the initiating financial institution. There is a bank fee associated with a redemption request which will be deducted from your IRA account.

The second option to purchase at auction is to establish an IRA owned LLC with checkbook control.  In this scenario the LLC is set-up with the IRA as the single member and you as the manager. A bank account is established for the LLC for which you hold the checkbook authority.  The LLC is then funded by the IRA and ready for you to use as purchasing power.  It is imperative that the LLC is established correctly and in the name of the IRA.  A separate EIN must be obtained and the LLC documents provided to the Custodian of record. Monthly bank statements from the checking account must be provided to Preferred Trust Company along with any documentation related to investment purchases.

The third option is to take a personal distribution from the IRA. Although we do not encourage this type of transaction, it is possible if you are on a time crunch and cannot obtain a cashier’s check or establish the Checkbook IRA/LLC. A distribution is considered a taxable event so you will need to provide proof of purchase within sixty (60) days. When the property is purchased through the IRA the prior personal distribution will be reclassified as the Earnest Money Deposit (EMD) upon the final closing of the investment property. You must make certain the purchase is in the name of the IRA, Preferred Trust Company FBO (for benefit of) your name and account type.  If you do not purchase a property at auction with the funds you received from the personal distribution, you will need return the funds to your IRA within sixty (60) days or you will be responsible for the associated tax consequences and a 1099-R will be reported to the IRS.

Once your bid is accepted and the transaction is complete, you will need to provide a copy of the following documentation to Preferred Trust Company: the certificate of sale or purchase and sale agreement, certificate of title, title insurance, copy of the quit claim or special warranty deed, proof of liability insurance, and a BPO or appraisal.

Using your self-directed IRA to purchase an auction investment property is possible – just select one of the three options above and you’ll be on your way!

Leave a Reply


Contact Us