Our clients who focus on their real estate IRA are encountering a more mature point in the investment cycle.
We’ve had a nice run up over the last several years. Indeed, if you had some cash to play with in 2009 and 2010 and a bit of patience, it was tough to go wrong with real estate IRA strategies. The real estate market was attracting a boatload of institutional money and all the real estate investor had to do was step in front of it.
Now there’s still institutional money coming in, but investors have to pick their spots a little more, and getting your valuations right is going to have increasing importance going forward.
Meanwhile, the permabulls at the National Association of REALTORS® has also released their 2016 trends piece. Naturally, they think it’s always time to buy, so take their advice with a grain of salt.
Here are the NAR’s predictions from 2016, plus a few thoughts from us on how they may play out for our clients and those considering a real estate strategy in their retirement accounts.
Home sales growth will see a reversion to the mean. We’ll see growth, but at a healthier and more sustainable rate than we saw in 2015. The percentage of ‘distressed sales’ will decline. That part is not great news for those looking for deep value opportunities from motivated sellers. Things will get tighter for the flippers – especially ones that don’t have a focused marketing effort and don’t know how to find opportunities before they come on the market.
Millennial buyers will finally gain some traction. Workers between age 25 and 34 – the ‘Millennial generation,’ will be moving out of their parents’ basements and are now starting to find some grown-up employment that will enable them to move into the housing market. For a long time we did see a ‘failure to launch’ among this crowd. These young folks graduated college into a very tough job environment but an improving job market is starting to make it possible for them to become big players in the starter home market – and in the not-so-starter-home market. That’s good news for everybody.
Meanwhile, Generation X is now entering their biggest years as earners, and will now be able to buy some bigger homes.
Rents will increase faster than home prices. That’s good news for you buy-and-hold, rental property real estate IRA-focused readers, especially. If you’ve been a flipper all your life, the market dynamics may push you more in the rental property direction. This is not a terrible thing. Just make sure you are willing and able to be a good landlord, or build enough margin into your purchase prices and expenses so you can afford to delegate those functions out to a property manager.
The increased importance of rental income actually increases the value proposition of the real estate IRA. Outside of a retirement account, landlords have to pay full-boat ordinary income tax on rental income over expenses. If you have significant rental income, you’ll want to leverage as much of that as possible by holding the assets in traditional or Roth real estate IRAs, which allow that income to compound either on a tax-deferred basis, or totally tax free, in the case of a Roth IRA (provided you hold the asset in a Roth for at least five years).
Have questions about real estate IRAs, and how to set them up? Call us today at 828-257-4949 American IRA, LLC is among the country’s leading proponents of real estate IRAs and an expert in the administration of self-directed retirement accounts.
Alternatively, visit our website at www.americanira.com and enjoy our extensive online library of information.
We look forward to serving you.