Imagine— a future where your retirement is secured by physical property. A future where you know that no matter what the stock market looks like, there is a tangible asset you can rely on. Investing in real estate is a popular strategy for many of those reasons. Unlike stocks, bonds, and mutual funds, it’s something you can touch, something you can feel, something you can drive up to and say, “I own that piece of property.” Most investors use personal funds or loans to buy real estate, and aren’t aware that you can make the same type of investment with your retirement savings. With the housing market rising steadily at 5-6% on average per-year since the 2008 market crash (according to the Case-Shiller Index), it’s no wonder more and more investors are looking at real estate to ground their retirement portfolios.
Using your IRA is an under-tapped method of investing in real estate. Not only does it give access to additional funding, but there are specific benefits to investing with an IRA. With the tax-deferred growth and specific loan options for IRAs, it’s an excellent addition to your retirement strategy. However, most large banking institutions will not allow you to hold real estate and other alternative assets in your retirement accounts. That’s where a self-directed IRA comes in— we will hold those assets, as well as provide you with educational resources to follow IRS rules and requirements.
The first step for most real estate investors is to transfer the funds from your current custodian or provider to a self-directed IRA. The purchase process is like what you’re used to with conventional real estate, and at IRAR we hold your hand every step of the way. If you have any questions about the process, we are always willing to explain the how and why behind our requirements. If you have anything you’d like to ask, please reach out and we’d be happy to help.
Here are 5 secrets that might make you think twice about your current investment strategy.
1. The Investment Property Grows Tax-Deferred
If your IRA owns the property outright (no loans), then any income produced by that property is not taxed. That’s right— it’s not taxed! The income from your IRA-owned real estate grows tax-deferred until withdrawn from your account, because the IRA is considered tax-deferred. However, all income from your property must go back to IRA until that time— rental checks or any other type of income must be deposited into your retirement account. Your IRA funds are invested to help build wealth until they are distributed.
2. The IRA Pays the Bills
The income that goes back to the IRA pays the bills for the property. If you need to pay utilities, property taxes, maintenance, or repairs, those funds come out of your IRA— letting the investment help pay for itself. If you don’t have enough money in your IRA to cover the bills, you can make an annual contribution to the IRA to cover these expenses. If this is not an option, you can also move funds from other retirement accounts to your self-directed IRA to cover these costs.
3. Self-Directed IRAs are Inexpensive
You might have considered a self-directed IRA, but the cost of most providers can be discouraging. Draining your IRA by paying high fees is not a good idea for your financial future. However, not all self-directed IRAs are expensive— there are affordable providers that have low fees. At IRA Resources, our annual fee to hold one real estate asset is $199, which we bill semi-annually to make it easy on investors. When shopping for a self-directed IRA, you should also keep in mind the quality of service from your provider. You want staff that are knowledgeable, who know what needs to be done to keep your IRA in compliance, who know what is and isn’t allowed when investing. You want to be able to ask questions and get the right answers, without waiting a week for a response. Sometimes low fees mean you are sacrificing service— but you don’t have to. Use this TEMPLATE to help you with the research and see what matters most when choosing a self-directed IRA provider.
4. Your Credit Does Not Come into Play
Because your IRA is the legal owner of the property, your credit does not come into play when applying for a non-recourse loan. Yes, that’s right! Your IRA can be the borrower. In the event of default or foreclosure, the lender can look only to the property as the source of repayment— the IRA owner’s other assets are excluded. This opens many possibilities for investors and allows strategies that typically wouldn’t be available. This isn’t a loan often offered at traditional banks and lenders, but there are some banks who do these types of loans. Each lender has different requirements, but the process is essentially the same. If you’re interested in knowing more about this process, you can read our article on non-recourse loans on our blog.
5. You Don’t Need to be a Landlord
If you do not want to deal with tenants, repairs, and other maintenance, you don’t have to. Your IRA can be the lender instead of buying the property outright. A non-disqualified person to your IRA can borrow the funds and it can be secured with the real estate. In this situation, you play a role similar to a typical non-recourse lender, where the property is the collateral in case of default on the loan. Many of our clients use real estate notes to invest, or a , often through a private placement or LLC. If you’d like more information about these methods, feel free to reach out to one of our real estate IRA experts— we’d love to help!
There are so many reasons to invest in real estate with your IRA. If you are already a real estate investor, take it to the next level— continue to build wealth in a tax-deferred environment. With the continued growth of the real estate market only predicted to continue to trend upwards, it’s easy to see why many are trying to get into the market in any way possible. If you’re already looking for a way in, ask yourself— why not use my IRA?
If you have any questions about self-directed IRAs, investing in real estate, or anything else, please do not hesitate to reach out. We’d love to hear from you. If there’s any way we can help, we’d love to set you on the path towards an easy retirement and a secure financial future.