The rise of real estate in self-directed retirement plans

BY KAREN LIBIN, KL REALTY

Confidence in the stock market continues to vary and many people are becoming more eager to take control of their retirement portfolios. Alternative assets continue to rise in popularity among IRA investors. Locally, investors are giving special attention to lucrative opportunities in the real estate market.

News to many is that real estate can be held in IRA or 401(k) accounts in the same manner as traditional securities. Real estate investors may not realize that tax-advantaged funds may be allocated toward their familiar investment avenues. Furthermore, yielded income will bear those same tax advantages. The process may seem complicated given IRS parameters and titling requirements, but education-based IRA providers can assist you every step of the way.

Should you be interested in purchasing real estate through your IRA, there are some key considerations. A knowledgeable realtor can connect you with trusted providers of self-directed IRA accounts, help you locate a suitable property, finalize the deal, and help you through closing. From a processing perspective, initiating a retirement investment is comparable to initiating a personal one.

  • In a real estate purchase you can leverage up to 65% of the value of the property. This you cannot do with stocks or gold bullion!
  • The borrowing is made through a “non-recourse” loan. (In other words, the only collateral involved is the property itself.)
  • If your IRA purchases investment property, it goes on title as the owner of the property. Your plan must be sufficiently funded to cover inherent expenses, including down payments, maintenance costs, etc.
  • You may not perform any services to the property to avoid maintenance expenses, and certain family members are disqualified, too.
  • Yields from the asset must return to the account.

The rules and guidelines may seem complex and you will need professional help in working through them and managing the account, but they shouldn’t dissuade you from diversifying your self-directed retirement portfolio with real estate.

These guidelines may seem inconvenient amid the complex process of real estate investing. Keep watching this column for future articles on the topic.

 

This article was prepared in collaboration with Jennifer Pfeifer of New Direction IRA.

 

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