When you think of picking IRA investments, you might think of stocks, bonds, mutual funds and exchange-traded funds. However, you have many other options.
Investing in real estate is becoming an increasing option for investors who are thinking about retirement and who also want to take advantage of the return of potential in the real estate market. For the most part, real estate is a nontraditional investment for retirement-account purposes and there are few options for investors to use direct real estate investments for retirement accounts, excluding real estate-related funds. According to Investopedia, “less than 2% of retirement accounts are invested in real estate, the emergence of IRAs for which the primary – and possibly only – investments are real estate products is beginning to change the situation.”
But how do you start when getting involved with IRA investments. With the help of a self-directed IRA, investors can invest directly in real property, mortgages, private placements and other non-traditional assets.
The self-directed IRA provides investors with opportunities for asset diversification outside of the traditional investments. All securities and investments are held in an account administered by a custodian or trustee. A self-directed IRA will allow the account owner to make investment decisions and choose which investments they want to consider.
According to Forbes, “Seattle tax attorney Warren L. Baker, 37, has spent a decade building a national practice advising owners of self-directed IRAs. He sees both the potential and the peril. One client inherited a $10 million IRA that has grown into a $50 million IRA largely through private equity investments. Another turned a $200,000 Roth IRA into a $10 million tax-free retirement kitty by buying raw land on the edge of a Midwestern city, selling at a profit and investing in more land.”
“For the real estate guy driving around looking for deals, it’s not that much of a stretch for him to have his IRA buy property,” Baker said.
Before investing in real estate through a self-directed checkbook IRA, there are a few things that you should keep in mind.
- The self-directed checkbook IRA will hold title. According to NerdWallet, “Your retirement plan will hold the title of the property, and you may sign on behalf of the plan. Taking title in your personal name would disqualify the IRA.”
- Costs are paid by the account:All expenses which are acquired in the transaction should come from the retirement account only. Personal funds cannot be used for repairs, maintenance, or any other costs associated with the property.
- All rental income will back to the account: In purchasing a property that generates property, all rental income should go back into the retirement fund.
There are many benefits to investing with a checkbook IRA but there is a lot of researching you should do before you get involved with IRA investments.