Frequently Asked Questions about Real Estate IRAs
“Real estate? In a retirement account?” That might be the most frequently-asked-question in the world of Real Estate IRAs, to be sure.
But you’d be surprised at how few investors—even street-wise, savvy investors—are either not aware of the possibilities of the Real Estate IRA, or outright dismiss the notion of a Real Estate IRA because they don’t “know enough” about them.
Well, we here at AmericanIRA.com are looking to change all that. And what better way to introduce you to the topic than to answer some of the most frequently asked questions about these exciting retirement strategies?
Question: What benefits does real estate offer that other investments don’t have?
Answer: There are a lot of potential advantages to Real Estate IRAs. For starters, income generation is very important in the world of real estate—it provides a “passive” level of income that offers added security when you need it in the most. The growth potential of real estate is also very high, thanks to the general appreciation of real estate over time. A well-placed real estate investment can yield a return on investment unlike many of the other types of retirement investments. And, of course, there’s raw flexibility: you can invest in land, single family homes, townhouses, condominiums, resorts, etc. Now that’s some real portfolio diversification!
Question: Can I use my IRA and apply leverage in real estate investments?
Answer: You cannot pledge your IRA as collateral on any loan that’s used outside of your IRA…however, you can still use debt to finance property investments within your IRA. There are a few restrictions on this, of course, in that your IRA-based loans need to be “non-recourse.” Non-recourse means that should the investment default, then the lender can only claim the property that they’ve directly loaned
you money for. That affords you certain protections with IRA investments, which is a hedge against loss.
Keep in mind, however, that these features are not tax-free, as the IRS may assess unrelated business income or unrelated debt-financed income tax on profits that come from borrowed funds.
Question: How does a Self-Directed IRA with real estate investments help me “diversify”?
Answer: We believe that true diversification happens when you place investments across a broad
spectrum of different investment types. For example, if you own a lot of different types of stocks, then
it’s easy to fall into the trap of believing yourself to be “diversified.” But if you own no mutual funds or no ETFs, how well are you really diversified? And diversification goes beyond just markets. Real estate, precious metals—those are some “real-world” ways to diversify your portfolio so you’re not just relying on one page of the Wall Street Journal to account for all of your future investments. True diversification happens when you don’t have to rely on the health of one particular sector for your future.
Question: Why do I need a Self-Directed IRA?
Answer: We believe a Self-Directed IRA to be one of the best ways to achieve the diversification we’re talking about. A Self-Directed IRA allows you to make the investments in real estate you otherwise wouldn’t be setting aside for the future. By directing your own financial destiny, you’re going to be able to leverage your skills and experience to make the kinds of investments that will pay off in the long- run…which, if you ask us, is the point of investing for retirement anyway.
Have any more questions about investing in real estate with an IRA? Call us today or get in touch with us directly 866-7500-472(IRA).