Monday, February 9, 2015

Real Estate and Investments for Retirement – Your Options

Real estate investing for retirement is becoming more and more popular as housing markets continue to stabilize. But, as with everything involving real estate and investments, you have to do your homework. Not only do you need to do your due diligence in buying and selling properties, but you also need to understand your tax and retirement responsibilities when using real estate investing for retirement.



Holding Your Real Estate Portfolio

Anyone can begin buying and selling real estate and plan on using the money for their retirement. However, without proper tax planning, you can get stuck with large tax bills that eat into your profits. Even if you are only paying the lower capital gains tax rate, you could be growing your real estate investments more tax efficiently in your Traditional or Roth IRA.  Contrary to popular belief, your IRA can invest in almost anything with the exceptions of life insurance and collectables.  Many people utilize real estate as a retirement asset because they know and understand real estate better than they understand the stock or bond market.  However, for someone looking for current income, it may not make sense in all situations to utilize the IRA.  Speak with your financial and tax professionals to determine what is best for your situation and particular asset.

Types of Real Estate Investments

While there are many ways to invest in real estate, the two most common real estate investments for retirement are buying rental properties that produce income and flipping properties in hopes of appreciation. Each type of real estate investment has a legitimate place. It may take a lot more skill and risk tolerance to successfully flip real estate, especially if you are using all of your assets. The amount of risk an investor takes with real estate and investments typically depends on how far away they are from retirement, their experience with real estate and their current mix of retirement asset types. 

Conclusion

If you are just starting out with real estate investing for retirement it can potentially make sense to begin conservatively. Beginning with a rental property that slowly that can produce income and could appreciate in value over time can be a better approach to real estate investing over short-term or speculative real estate transactions. The key to real estate investments is to steadily build wealth while maximizing income potential and taking advantage of tax breaks where you can.  Keep in mind that if you try to get rich overnight you are just as likely to lose everything.  Lastly, remember to perform your due diligence with all investments and to consult your financial and tax professionals.

If you’d like to learn more about real estate IRA investing, please contact the New Direction IRA business development team at 303-546-7930 x155 for a free consultation and links to great learning resources. 

Tuesday, February 3, 2015

Rental Real Estate Investment Education for IRA Investors

Is a rental real estate investment the best option for your self-directed IRA? The answer depends on each IRA investor’s unique circumstance. While some rental real estate investors appreciate they can “touch” their investment, others are stressed by the amount of responsibility that comes with being a landlord. Rental real estate investment education begins with understanding some of the finer points of the transaction before jumping in with both feet. Asking yourself some of the following questions can help you to gain a better understanding of whether or not rental real estate investing within a self-directed IRA is right for you.



·         What is my investment time horizon? Rental real estate is usually considered a long-term investment.  Unlike traditional stocks and bonds, rental real estate as an investment comes with maintenance expenses, taxes, and operating costs that can erode short-term returns.  
·         Does my IRA contain enough liquidity after I make my rental real estate investment? While real estate has the potential to increase in value over time and provide a steady income, certain economic times can make it difficult to rent or sell. Proper rental real estate education encourages investors to look beyond the initial property purchase price and take into account post-closing expenses when calculating necessary self-directed IRA account liquidity, especially if you are nearing the age when Required Minimum Distributions would be necessary.  As all expenses need to be paid directly by the IRA, cash shortfalls should be avoided.
·         Do I fully understand the local rental real estate market I intend to purchase from? Local rental real estate values often fluctuate. Rental real estate investment education for IRA investors often depends on local economic indicators of the specific region an intended investment is located. 
·         Am I prepared to become a more ‘hands off’ landlord?  Many rental real estate investors like the idea and/or the cost saving aspects of performing their own property maintenance and management.  When buying a property inside an IRA you are limited in the kind of services you can provide.  While you can still make managerial decisions (who to rent to, what color to paint the walls), you cannot provide any goods or services to the property which means no ‘sweat equity.’  
If you are considering rental real estate investments within your self-directed IRA, there is no right or wrong answer because it depends on your unique situation. Making time for real estate investment education can help you get started as a real estate investor or help you decide that type of investment isn’t suitable for you. It is always prudent to consult with your trusted tax, legal, and financial advisors to discuss all of your investment options before making a decision. If you’d like to learn more about real estate IRA investing, please contact the New Direction IRA business development team at 303-546-7930 x155 for free consultation and links to great learning resources.