Just about any bank, investment brokerage, or other financial institution will sing the praises of owning an IRA. But what many people do not know is that they can leverage a self-directed IRA for real estate purchases. Long-term generational wealth often has its roots in real estate, and your IRA may be the perfect vehicle to achieve that.
The team at Austin NNN eagerly researches the best development and investment opportunities in Austin, TX, and surrounding areas. We find ideal real estate with the highest potential ROI for our investors. If you’re ready to direct your IRA funds into real estate, we’d love to connect with you.
What Is a Self-Directed IRA?
The IRA is a wildly popular retirement savings vehicle. Whether it’s a traditional, Roth, or SEP, more than 60 million people own some type of IRA. But as prevalent as it is, most people don’t realize how much they can do with an IRA.
The term “self-directed IRA” (SDIRA) is not a legal term. Instead, it is an industry phrase that means just what the name implies. It’s an individual retirement account in which you determine the investment strategy.
You can switch your Roth or traditional IRA to a self-directed account at any time. For 401k accounts, you can shift to a self-directed option when you are eligible for a rollover.
The majority of IRA owners leave it to their bank or brokerage firm to direct how the funds are invested. And many believe that is their only choice.
The reality is that you can have total control over directing your IRA, and the funds do not have to go to stocks. That fact surprises most IRA owners since financial institutions tend to offer only stocks and mutual funds for an IRA investment portfolio. However, you actually can include alternative assets like real estate, cryptocurrency, or precious metals.
IRAs have been around since 1974, and legally, they can include just about anything. In fact, there are only three categories that cannot be part of your IRA. These prohibited transactions are:
- Collectibles – This section includes items such as gems, coins, and stamps.
- S Corporations – Only certain types of trusts can own shares of an S Corp. An IRA does not qualify.
- Life Insurance – You cannot direct your IRA funds into a life insurance policy on the life of the IRA owner or owners.
Why Consider Using a Self-Directed IRA for Real Estate Investing?
When choosing how to make your IRA funds work for you, directing them to real estate is a perfect choice. Traditionally, banks have offered primarily stocks and mutual funds in their IRA options. But more and more investors are growing leary of those choices, and maybe for a good reason.
In the last half of 2008, Americans lost more than $2 trillion in their IRAs and 401k plans. Political and social unrest in recent years has further impacted these investments. Diversifying into real estate, however, continually proves to be a safer investment, especially for long-term wealth.
SDIRA investment options also include things like precious metals, startups, foreign currency, and Bitcoin. But those commodities represent much more volatile markets than real estate. For sustainable growth and wealth-building, we find real estate to be a much more secure choice.
Americans have about $20 trillion in retirement assets, and the overwhelming majority of those funds are in Wall Street. That is a tremendous amount of money facing significant risk if the market crashes. But those who know about self-directed IRAs may protect themselves through diversification into other investments outside of the stock market.
Is a Self-Directed IRA Right For You?
As with any investment strategy, you should seek advice from a licensed expert. But in general, using a self-directed IRA for real estate may be a good fit for you if the following are true:
- You have a good understanding of investment options and strategies. Since you’ll choose how to direct the funds, you should have a good knowledge base on the subject.
- You have an IRA custodian who has significant experience with self-directed IRAs. This can take some work to find the right person for your needs. Many traditional financial institutions do not have enough experience in this field to serve you well.
- You have excellent legal support to make sure you follow the rules surrounding self-directed IRAs. For example, if the IRA owns a rental property, you cannot stay in that home.
Finding a broker or custodian for your SDIRA can be challenging. A few places to consider are uDirect IRA Services and Equity Trust. Be sure to do your due diligence when interviewing and selecting a firm.
SDIRA Home Purchase vs. Investment in Real Estate Syndication
Buying a Home
Directly purchasing a house or other property with a self-directed IRA is a passive investment that may not be very lucrative. It can be challenging to get a mortgage in this situation, and you can typically only leverage 40% to 50% from the SDIRA.
Investing in a Real Estate Syndication
By investing in funds such as those offered by Austin NNN, on the other hand, you have a high likelihood of better returns. This option is an active form of investment that is much more attractive. A real estate syndication can leverage the pool of funds, up to 70%, so that you see a much higher return on your investment.
For more information on the topic of SDIRAs, check out the IRA Financial Group. Their YouTube channel provides a lot of excellent information for those who want to take advantage of the power and benefits of self-directed IRAs.
Austin Real Estate Investing for the Win
The Austin, TX, real estate market is highly lucrative. The area has been popular for decades and continues to draw buyers and investors.
Connect with the experts at Austin NNN today to use your self-directed IRA funds to break into this market. Our team will help you choose the best investment property for your timeline and budget. And you’ll be back in the driver’s seat of your IRA account.