The Perfect Time to Buy Rentals for Your Self-Directed IRA

It’s commonly said that the only way to consistently make (mostly) passive money long term is through the stock market. But anyone who’s ever bought a rental property knows this isn’t true. If you want to make more money with a Self-Directed IRA and you’re not so sure about stocks, real estate can be one of the smartest decisions you’ve ever made as an investor.

Even so, the process leaves some full of anxiety. If you’ve never owned a rental property before, the idea of being an owner rather than a tenant can be downright scary. Fortunately, the process is a lot simpler (and a lot more hands-off) than you might imagine. And there’s even better news: now might be the perfect time to acquire rentals for your Self-Directed IRA. Here’s why.

Many Millennials Prefer to Rent as Leases “Replace Mortgages”

Home ownership is not what it once was. The “American dream” used to be a home, a dog, and a white picket fence—presumably, one you were not renting. But millennials are changing things. A recent article at Newsmax showed the growing interest in renting—which in turn drives up the demand for rental properties like the one you might own one day.

In Detroit, once a bastion of middle-class homeowners, millennials have helped drive up the “renter pool.” The simplicity and low costs of renting have led many of these millennials to seek out the kinds of rental properties that you might be interested in owning.

It’s not just Detroit, either, as Newsmax points out. Writes the article: “Fifty-two of the 100 largest U.S. cities were majority renter in 2015, according to U.S. Census Bureau data…” That translates to more renters in the market—and more demand for your rental property no matter where you are.

But even if now is the perfect time to own rental property within a Self-Directed IRA, let’s take the time to weigh the benefits. What exactly is so great about holding rental property in a retirement account—and what benefits can you realize if you make your first major investment in real estate?

Benefits of Real Estate in a Self-Directed IRA

There are some limits to owning real estate in a Self-Directed IRA. You’re not allowed to be your own tenant and live in the investment, for example. But there are so many benefits to utilizing this protection that you won’t worry about the restrictions. These benefits include:

  • Borrowing money within the IRA to purchase real estate. With non-recourse financing, you’ll have some additional protection when you secure financing, which in turn gives you peace of mind, even if you don’t find a renter right away.
  • You’ll be expected to hire a property manager, which can be surprisingly affordable—it also means that the rent will be collected automatically for you, which turns the rental real estate into passive income.
  • Owning real estate within a Roth IRA allows you to collect the rental income tax-free. That benefit alone can save you a lot of money if you keep a long-term focus on building a retirement nest egg.
  • You can sell property within your Real Estate IRA without having to worry about capital gains taxes, further saving you money.
  • You can partner with others when you acquire the real estate asset, which in turn helps you leverage a smaller amount of investment capital. This is great for first-timers who need to learn the ropes.

If anything, the Self-Directed IRA is one of the most efficient vehicles for ensuring a return from your real estate investment. But like any investment, it will require research and know-how before you get started. For more information about real estate within a Self-Directed IRA, visit our Real Estate IRA section or call us at 866-7500-IRA.