What Everyone with a Self-Directed IRA Needs to Know about Expensive Real Estate Rentals

If you were to look at a recent photo gallery of the most expensive rental properties across the 50 states, then you might conclude that real estate has gotten totally out of whack. After all, who can afford thousands upon thousands of dollars per month just to make the rent? How could you ever contribute to your retirement or a Self-Directed IRA if you were forced to pay well into four figures—and often flirting with five figures—just to have a roof over your head?

But there’s another side to this equation: someone owns these rentals, and is collecting money. And a lot of it. The truth is, having a Self-Directed IRA can be a boon to anyone who believes in the value of rental properties simply because you are allowed to invest in real estate with an IRA. And directing your own IRA means that you get to choose the rental properties in which you’d like to invest. But there’s more to learn from this side of the fence…

How can a Self-Directed IRA Yield Income Later in Life?

If you’ve invested only in a few stocks over the years, the idea that something in your retirement account could generate plenty of retirement income might seem foreign to you. But what if you were to leverage a Self-Directed IRA and make the full use of it? What if you owned this rental property in Alaska, collecting much of the rental income as profit?

The truth is, if you have a lot of money to invest but aren’t sure how to utilized a Self-Directed IRA in order to generate the most amount of profit possible, then rental real estate is an option you need to consider. Not only can you choose real estate based on your own criteria—and even within your own locale—but you’ll be able to hire a property manager who handles the day-to-day enterprise of keeping a property in good working order.

That means you only have to worry about collecting the checks.

Real estate is one of the most important ways that investors start acquiring passive income. But simply because you know about this option doesn’t mean it will necessarily work for you. You also have to know how to best use real estate to get the most out of it in your Self-Directed IRA.

Maximizing the Value of Real Estate with a Self-Directed IRA

First things first: there are a few rules of which you need to be aware if you’re going to start investing in rental properties with a Self-Directed IRA:

  • You can use leverage in order to purchase real estate within an IRA, but it’s limited to non-recourse terms financing. Non-recourse typically means that a lender can’t come after you for anything but the value of the property in question—which sometimes limits your prospects for acquiring a lot of leverage.
  • Your property manager will be tasked with paying expenses and collecting profit; you’ll be expected not to live in a property which serves as a real estate investment.

Fortunately, there are lots of freedoms that come with using a real estate investment within a retirement account, including:

  • You don’t have to worry about capital gains taxes when buying and selling property within your Real Estate IRA
  • You still can partner with others when you’re acquiring an asset
  • Rental income also has tax-free benefits

So while there are some limitations to property investment when using an IRA (wouldn’t it be great to live in your own investment, for example?), there are also some powerful tools that you can use when considering a retirement nest egg of this type. True: you do have to pay off the value of a real estate investment, just as you would have to pay off any loan, which can cut into your profits. But over the long-term, you can build equity that leads to high-quality, passive income that you can simply enjoy while the property manager handles all of the grunt work for you. That sounds a lot like having the ability to retire on your own terms.

What About the Ridiculous Rental Properties?

When you see lists and slideshows online with overly expensive rental properties, it’s tempting to scoff at what you see. But remember that real estate can indeed be one of the most viable investments for anyone looking to build a retirement income for themselves. It’s fun to joke about the kind of rental fees you can see at these properties, but the truth of the matter is that the benefits you can receive through real estate investment in a Self-Directed IRA are entirely serious. For more information on real estate investing through an IRA you direct yourself, contact us at 866-7500-IRA.

Rate this post