For the most part, when people think of real estate investments, they think of having to come up with the cash or secure a loan in order to make the initial purchase. However, using the funds in a self directed IRA offers a different option that many people are not aware of. Using the tax advantaged funds in your IRA to purchase real estate not only keeps you from having to place undue burden on your existing monthly budget, but offers you a new way to increase your retirement savings while adding to your net worth. Here’s what you need to know about real estate IRAs. Delayed taxes on investment gains Using your real estate IRA to purchase the investment property allows you to defer the payment of taxes on your rental income as that money is deposited into the IRA, turning it into a tax shelter. As long as the money remains in your IRA, you won’t have to pay taxes on that income. This is also true for the profit you earn when selling the property. Tax-free growth through a Roth IRA If you are making real estate purchases using a Roth IRA, you won’t have to pay taxes on your distributions either, so long as that distribution is made after age 59 ½. You won’t have to pay taxes on the income produced by the real estate, on the appreciation of the property or any gains when you sell the property. The only drawback is that you don’t get a tax deduction for your contributions for this type of retirement account. Leveraged growth Investing in real estate through a retirement account makes it possible to not have to pay off the purchase all at once. There is a way to pay a portion of the cost of the purchase while then taking out a mortgage on the rest. When you do this, you have the ability to offset the interest that you pay on the mortgage with a higher rate of return on your investment. This process is known as leveraging your money and can net you a handsome profit. When you use a mortgage to pay for a portion of the real estate you are putting into your IRA, your property will not be titled to you. It will be titled to your IRA. Why is this an important distinction? Because it protects your personal assets from loss in the event that you default on your loan. When you use a mortgage to make real estate purchases for your IRA, you’ll take out a non-recourse mortgage. This means that when you default on the note, the lender has the right to repossess the property, but cannot come after you or your personal assets in order to satisfy the balance of the loan. This protects your personal savings as well as your credit score. Rental income The rental income you receive from your investment properties represent a much higher return on your investment than anything you will see from traditional investments like stocks. Plus, you can continue to receive rental income from your investments long after you retire and begin taking distributions from your account. This can help to supplement your savings and Social Security income.