From the day we start working, we are told to begin saving for our retirement. Sound advice – but how do you go about choosing where to invest your hard-earned cash wisely so that it will see you through your golden years? With a variety of investment options available, some careful research and planning is needed to make the right decision.
Real estate IRA investments offer you great potential return on investment, diversity in terms of your portfolio, and an investment with intrinsic value. You can earn good returns while enjoying the benefits of a tax-deferred status on your real estate investment.
A Self-directed IRA (SDIRA) is another option for an IRA holder, which allows them to invest in diversified assets. A lot of investors who are close to their retirement are interested in creating passive income, so they can have a comfortable post retirement life. They are mostly in their 50s or 60s and looking for investment options but they don’t know that they can invest their IRA in real estate.
We recommend you invest your IRA in real estate using one or more of these 4 ways:
- Real Estate Investment Trusts (REITs)
If you are looking for easy transactions both in and out, REITs (Real Estate Investment Trusts) provide that. Many REITs are registered with the SEC and are publicly traded on a stock exchange. These are known as publicly traded REITs. Others may be registered with the SEC but are not publicly traded (non-traded REITs). All REITs have their own specialties, so make sure you do your due diligence on the company. REITs are required to distribute 90% of its taxable income as dividends, so many retirees look to REITs for income.
- Hard Money/Private Money
With this option, you are basically the bank. You lend out funds to other investors and they pay you interest on that money. Interest rates can vary from as low as 6% to as high as 15%. There can be some up front legal costs to make sure all of the paperwork is in order but once you find a good borrower, this can be steady money. One big downside to private money is the loan eventually will mature. Once it matures you may have to start the search all over for another borrower. We frequently use private money in our business, so if you have questions about structuring deals reach out.
- Rental Properties
You can also invest in rental properties. You can buy distressed properties, rehab them and rent them out or you can buy performing ones. If you decided that you want to go the distressed route you’ll have to keep a very close eye on the accounting. There are lots of rules in regards to tracking the money. You can either manage them on a daily basis or go through the process of hiring a property manager to manage it for you. This is a good way to build a passive income stream.
- Turnkey Real Estate Investment
Self-directed IRA (SDIRA) is another option for an IRA holder, which allows them to invest in diversified assets. A lot of investors who are close to their retirement are interested in creating passive income, so they can have a comfortable post retirement life. They are mostly in their 50s or 60s and looking for investment options but they don’t know that they can invest their IRA in real estate.
Turnkey is a viable option for SDIRA owners. This basically means that you are working with a turnkey investment company that are selling rental properties. Most of these investment properties are already rehabbed and rented out. You just need to buy the property and everything else is managed by the turnkey company. This is the best option for out-of-state investors or someone who’s not interested in rehabbing or managing the property. You’ll get the rent every month and you’ll pay a portion of that to your turnkey company for managing the properties. It is a easy hands-off approach to investing in real estate, if you want to learn more take a look at my ebook How to earn double digit returns while sitting on the couch.
You may have noticed that fix and flip is not on this list. And there is a big reason for that. The idea behind an IRA is that it is a retirement account, not a business account. If you start conducting business in your IRA, it can open you up to tax liabilities. If you are looking to be involved with fix and flip, I urge you to look into private lending as an alternative.
With that all being said, I am not a tax attorney, accountant or an expert on IRA’s. Please consult a professional before taking action. If you want to learn more about how we can help you invest in real estate, please contact us for a FREE private consultation.