Real Estate Investment Procedures

What you'll find on this page:

Basic chronology: in which order things should happen

  1. Open an account and make sure it will have sufficient cash needed to fund your investment.
  2. Draw up an offer/contract using your PENSCO account's name, then read and approve by initialing or signing the document wherever initials and signatures are required.
  3. Request that PENSCO Trust Company fund the earnest deposit from the funds in your IRA if needed.
  4. Read and approve all cdocuments and send to PENSCO Trust Company.

For an overview of how long the process may take, review our real estate investment timetable.

Before shopping for property

If you haven't already established and funded a PENSCO IRA or one of our other accounts, you should start there. You need to open an account so that you have your IRA's "name" to work with. Remember, it's your IRA that will be purchasing the property and paying for transaction expenses, not you.

Establish your account

Once we receive your application, we will process it and mail you your new account information, including your IRA's "name".

Here's an example of an IRA "name":

PENSCO Trust Company FBO Mary J. Investor, IRA
("FBO" stands for "for benefit of")

Fund your account

At the same time PENSCO Trust Company receives your application, we should also receive instructions from you about how you plan to fund your new IRA. The time it takes to fund an account can vary quite a bit depending on how you plan to fund it.

If you aren't sure about how you'll fund your IRA, see Funding Methods and Timelines for details.

Your PENSCO account can't make a purchase until funds reach PENSCO Trust Company and are cleared.

Select a purchasing method
  • IRA purchasing 100% of a property (all cash / no loan)
  • IRA participating in a tenants-in-common (TIC) to purchase (all cash no loan)
  • IRA purchasing 100% of a property using leverage (e.g., IRA is acquiring a non-recourse loan)
  • IRA purchasing a TIC interest in a property that will be leveraged (a non-recourse loan will be used)
  • IRA purchasing with partners

For more about the methods, see Investing in Real Estate in Your Self-Directed Retirement Account

Draw up your offer / contract

You must draw up all offers and/or contracts so that your account is listed as the buyer. Your account should be treated as an investor separate from you, and its name, not yours, should be used anywhere on the offer that describes the portion it's buying. Whether it's the sole buyer, or buying as a tenant-in-common, the documents should be vested correctly. The IRA's title ("name") is:
"PENSCO Trust Company Custodian FBO ‘Your First Name and Last Name’ IRA"
You aren't allowed to assign a contract drawn up in your name or any of the "Disqualified Parties" (See another section on Disqualified Parties)

Fund a deposit / earnest funds

When your IRA purchases property, your IRA must fund any necessary deposit or earnest funds. To authorize PENSCO to put down a deposit from your PENSCO IRA, simply email to realestate@pensco.com or mail or fax in our Investment Authorization Form for Non-Publicly Traded Investments (using the description of the property as the "Name of Investment"), a copy of the purchase contract which must be approved and signed by you, the accountholder. If you need to rescind your instructions, please complete and attach the Expense Payment Form.

Closing time

Prior to closing, you, the account owner, must read, approve and sign all documents before sending them to PENSCO for the final custodial signature. After administrative review and your signature of approval, PENSCO Real Estate Officer will sign the documents on your IRA's behalf, and then we'll return the signed documents to the closing agent, along with funds, for closing.

Vesting of all documents

  • "PENSCO Trust Company Custodian F.B.O." + [Your Full Name] + "IRA" (or SEP IRA, Roth IRA, etc.)
  • Purchases should be transacted under PENSCO Trust Company's Tax ID: 02-0526633
  • The initial deposit, any increased deposit, expense item, and all closing costs must be authorized for payment using our Investment Funding Instructions.
  • The IRA owner or any other prohibited party in relation to the IRA should not make any deposits from personal funds.
  • If financing, the IRA's loan must be a non-recourse loan (subject to our review).
  • Contract of sale, counter offers, etc. should all be in the PENSCO account's name. Read, approved, and signed by the account owner (will then be signed by PENSCO).

    Note: Contract cannot be reassigned from the individual, to the individual's account (or other disqualified parties) as this could be construed as a prohibited transaction or improper contribution.

Required documents and checklist

To get started, read and follow our checklist included in the Real Estate Investment Kits.

PENSCO Trust Company prefers an independent escrow (title/escrow company or closing attorney).

Most common reasons for processing delays

  • Account does not have sufficient funds required for the Investment and our $500 minimum cash balance
  • Incomplete paperwork / package
  • Incorrect vesting. Make sure you use IRA's name as the buyer and not your own
  • Missing initials and signatures where required in contracts and other documents

Asset valuation for real estate

How the valuation process works:

Alternative investments, like real estate, need to have valuations performed, generally about once a year. The reason is that, unlike exchange-traded investments (like stocks and bonds), which are priced daily through the public exchanges or markets, an alternative asset's value has to be derived through other means.

With real estate, the valuation is done through an opinion of a value from a licensed independent realtor or broker to get the fair or current market value of the investment. We can accept recent appraisals, by a licensed Real Estate appraiser; however, we do not accept tax assessments for valuation purposes.

In addition to the regular valuation, if you want to take a distribution, you'll need to have your investments appraised and valued by a licensed real estate appraiser prior to being able to take a distribution.

Once the valuation is complete, we'll report this information in your quarterly statement. You can also view this information online in our secure client website if you've set up online account access.

Real Estate Expense and Maintenance

PENSCO Trust Company pays for expenses on behalf of the accountholder from the available cash in the account.

All expenses must be paid from cash funds in the account and never paid directly by the accountholder. It's important that your account maintains cash balance minimums in order to cover expenses such as HOA dues, property tax, etc.

You will also need to authorize all expense payments that we'll make on your behalf. You can do so with the Expense Payment Form or by logging in to our secure website.

Next steps

This information is for general informational purposes only and is not intended as an individualized recommendation or to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, PENSCO recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager. PENSCO performs the duties of a custodian and, as such, does not provide investment advice or sell investments, nor offer any tax or legal advice.