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. 

The Real Estate Developer Guide to Creative Real Estate IRA Investing

While many people want to use the power of a self-directed IRA for real estate investing, they often feel they can’t get started because they don’t have enough money in their plan. Thankfully, there are several creative ways to bring your real estate transaction to fruition even when your situation is less than perfect. Even if you are low on funds in your self-directed IRA you can still become a real estate investor. You just need to use some creative real estate investing techniques. While the IRS does have strict rules for self-directed IRA’s, it still allows for considerable flexibility in growing the plan’s assets.

Partner Up Instead of Going Alone

There is nothing to stop you from partnering with someone else when making self-directed IRA real estate investments. While you on your own may not be ready to become a real estate developer, there are many opportunities waiting for your investment. You can go in jointly with other IRA plans, investors, or even invest with companies that in turn invest in real estate. You can even partner with disqualified persons that you otherwise could not perform transactions with. Together you can jointly own property. Creative real estate tactics like partnering with others also gives you the chance to learn from more experienced investors. The rules governing IRAs require that you only pay fees and costs of the investment in proportion with the plan’s percentage of ownership in the property and receive the same percentage of the profits. If you are a 10% owner, your self-directed IRA must pay 10% of the fees and costs and receive only 10% of the profits.

Leveraging the Property

If you find yourself with a cash shortfall and no partners, you IRA could potentially take out a mortgage to increase purchasing power.  The IRS does allow you to leverage plan assets so long as it is not for personal use and the money is used to acquire further investments for your self-directed IRA. The best practice is to get a non-recourse loan, one that uses the property as collateral and keeps the lender from coming after you, your other assets, or the assets of the IRA in case of default. While these loans are more difficult to locate and acquire, for the creative real estate investor, they are still available.  It is important to note additional taxes may apply on the portion of profits derived from using leverage. 

Conclusion

Don’t let the idea that you don’t have enough money in your self-directed IRA keep you from starting your path as a real estate developer; you have options. Creative real estate investors can even transfer money from old 401(k) plans as well as employ other strategies such as investing in real estate related notes to grow their portfolios.  Start getting creative! 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.