December 1, 2023

Self Directed IRA Real Estate Place Investors in Charge

ira real estate investment

Many people think that their legal obligation to manage their IRAs through a custodian means that they don’t have any control over their money, but this isn’t true. Self-directed IRA real estate investment ensures that consumers are always the ones in charge of their retirement savings.

Real estate is a great way to invest for retirement. Unlike many business-related investments, like stocks and mutual funds, real estate usually has the longevity to last until retirement and still have value that can be added to your estate. Even though there are temporary downswings, like the housing bubble, these don’t last forever because people will always need places to live and do business. Moreover, a well suited income property usually weathers the storm while producing consistent income during the swings in value.  Multi-family is a good example of this type of investment where rents have gone up in markets, even during the downturn, due to the increase demand from those needing to rent.

Self-directed IRA real estate investment lets people diversify their portfolio into assets once thought only possible through REITs.  For instance, many of our clients use our IRA plans to directly invest in real estate without ever paying penalties and not having to pay fees and operational costs associated with REITs / Brokers.  IRA rules dictate that investments in items like commercial buildings, undeveloped land, rental apartments and even vacation properties can be paid for using 401(K) or IRA funds. Unlike other early withdrawals, these do not incur penalties or early-distribution taxes while in a Self-directed Plan.  For this reason, many of our clients use their retirement funds to generate extra, lower-risk income.

This strategy puts our investors in control and it is easy to understand. Most of our customers who use their self-directed IRA funds for real estate purchases do so because they are investing in “what they know”.. There are few restrictions on the type of property you can invest in and the rent or profits you make count as returns on investment for the retirement fund, there is no K1 or Schedule E.  In fact, gains in this type of investment are not reported on the tax return.  Instead, there is simply a one-time report of value each year for the IRA.  This is a great way to take advantage of growth and allow the “would be” tax dollars to work to your advantage.

There are other advantages to self-directed IRAs.  The flexibility of self-directed IRA account makes it perfect for helping out relatives’ who own businesses or may be investing in properties.   Under certain guidelines, your IRA can make loans to others as “private money” lending.  You establish the terms for repayment and loan the money from your self-directed account.