After years of just breaking even with the stock market followed by double-digit returns that could be wiped out with an imminent stock market crash, many pre-retirees gravitate to real estate. When you are open to using retirement funds to buy real estate in an IRA, you open up a new world of opportunities. You can buy houses with money from a 401(k) or IRA as long as you roll the money into a self-directed IRA. A true self-directed IRA with checkbook control lets you move when you identify a distressed property or other bargain real estate investment. You can use your self-directed IRA to buy a myriad of alternative investments other than stocks, bonds or bank CDs. Holding real estate in an IRA lets you take advantage of the renter’s nation in which a growing number of people rent instead of own their own homes, but there are other reasons to use a self-directed IRA for real estate investing.
Enjoying tax-free gains
When you buy an investment property with a self-directed IRA LLC, you enjoy gains that are tax-free. Like any retirement account, the self-directed IRA account enjoys tax deferment. Your rental property could increase in value from $100,000 to $300,000 in 10 years. Because you held the real estate in an IRA, you don’t owe taxes on the $200,000 gain. If you rolled over money from a Roth IRA or Roth 401(k), you won’t even owe income taxes on the money when you retire (after age 59 1/2).
Maintaining autonomy and control
Another reason to choose a self-directed IRA to purchase real estate is the freedom, autonomy and control. After you set up a self-directed IRA LLC, you don’t need to seek consent from a custodian. With checkbook control, you are the one who identifies the investment property. You are the one who purchases the investment property with your self-directed IRA.
Keeping It Simple
Although some people bemoan the fact that the IRS prohibits certain transactions with a self-directed IRA, the reality is the process is straightforward. You can’t live in your investment property or use it as a vacation home for yourself or your lineal bloodline. If you get into the mindset that your investment property is just that, an investment property, you are less likely to get tripped up with IRS rules. Even if you trade stocks there are boundaries you need to follow such as avoiding insider trades. With a self-directed IRA, all expenses related to the rental property go through the self-directed IRA LLC. Your rental income gets deposited in the account. The process is simple.
Capitalizing on the rental trends
If you wait to buy a rental property several years from now, you could miss out on the spectacular market rent throughout the country. As an investor, the question isn’t whether or not to invest in real estate but whether to act as a buy-and-hold investor or a person who flips homes for a profit. You can make money for your retirement taking either strategy. It just happens that rental properties in many hot cities command a high rent, making a great ROI (return on investment) for people who hold real estate in an IRA.
At New Standard IRA, we offer comprehensive details about alternative investments including real estate. We help people who don’t fit in a box or conform to what everyone else is doing to plan for their retirement futures. For more information on holding real estate in an IRA and how to get started with a truly self-directed IRA, please contact us.