Self Directed "IRA" investments

A lot of people are struggling with how to invest for their retirement.  We have all heard that retirement funds have been set back 10 years.  People don't want to work an extra 5 years to re-fund their retirement are looking for a better way of doing things.  Most people are unaware of how they can use a portion of their retirement funds to invest directly into real estate and bypass Wall Street by using a Self Directed IRA.

The first concern most people expressed is, "I checked with the company that services my IRA and they won’t let me buy real estate. I can only buy and hold stocks, bonds and mutual funds." Most of your typical brokerages will not tell you to buy and hold Real Estate because they don't know how to do it and they would not receive a commission for selling a non-traditional Wall Street product. Real Estate is considered an "alternative asset" when it comes to retirement accounts. There is a special "Self Directed IRA" which is designed to hold alternative assets. There are several very good brokerages however, which offer Self-Directed IRAs for real estate.

Keep in mind that opening a Self-Directed IRA does not mean you have to close your current IRA. You can transfer as much or as little as you want to your new account. For Example, if you have $500,000 in a traditional IRA at a brokerage house and you want to invest $150,000 in real estate, you can just leave the other $350,000 at the brokerage and maintain your current assets. However, if you rolled your entire IRA over to a Self-Directed IRA you can still own all the traditional assets you’d like. A self directed IRA has all of the features of a traditional IRA with the added ability to hold alternative assets, like real estate.

Everyone knows that the closer you get to retirement the less risk should be in your portfolio. Depending on your current needs, you may be looking for long term appreciation or immediate cash flow from a rental property. Working with a good Real Estate Broker and attorney you can clearly define your objectives and find several properties that meet your investment goals. Owning property that cash-flows in your self-directed IRA offers a stream of revenue which often times can create better cash flow than an annuity or stock dividends.

Just like a traditional IRA, all appreciation and cash flow are tax deferred. Always work closely with the company servicing your Self Directed IRA to ensure compliance during the purchase or sale transaction. If the transaction does not comply with the self Directed IRA requirements it is possible you will lose the tax deferral as well as incur an early tax liability. Due Diligence is the name of the game.

Many people also think, "I’d love to invest in real estate through a Self Directed IRA but I don’t have enough money to buy the entire property."  A great way to take advantage of Real Estate in a self directed IRA is through Fractional ownership. Fractional ownership is a type of situation where multiple investors pool together their funds to make one larger purchase. For Example:

Joe and 4 of his friends each invest $50,000 from their self directed IRAs to buy a $250,000 investment property. Now Joe and his friends each own a 20% interest in a cash flowing property. By pooling together funds and buying properties for cash there is no dilution of returns. 

Real Estate is a logical addition to many retirement portfolios for 4 key reasons.

1. It is totally transparent - Real Estate is a tangible asset and over the long term is less subject to the same volatility as many traditional Wall Street products. 

2. It offers strong cash flow - Many income properties are generating between an 8% and 10% annual cash return.

3. It can be acquired at bargain prices - With many landlords needing to liquidate properties, today’s market offers great opportunity to acquire real estate at below-market prices. Having a portion of your retirement invested in real estate can give you greater diversification and return of your investment as well as return on your investments.

4. It acts as a hedge against inflation - With the fear of inflation looming over the economy, real estate has always acted as a hedge and performed well in times of high inflation.

Thank you for your time.  If you have questions about companies that can act as a custodian of you self-directed IRA, give me a call.  

2271 Wilma Rudolph Blvd  Clarksville, TN 37040 Cell: 931-802-1163   Office: 931-648-8500  Toll Free: 888-928-8500 Each Office is Independently Owned and Operated Broker:  Kevin Van Aken