Several recent surveys show that the cost of renting apartments as well as houses has increased steadily over the past two years. While you can argue about the reasons it is happening, there is no argument that now is a good time to be or become a landlord. This could help your Self-Directed IRA.
Among the benefits of having a Self-Directed IRA is your ability to use a percentage of your available funds to purchase rental property. Since, in most cases, you are not allowed to live in or manage real estate owned by your Self-Directed IRA, the result is that you could benefit from rental property located anywhere. It is a matter of finding the best investment opportunity, wherever it may be.
One of the primary reasons for the increase in renters is that fewer people own their home this year than has been the case in recent years. In some cities, home prices have risen to the point of being out of reach for first time buyers. Some will argue that the number of foreclosures and distressed properties in recent years has impacted the ability for millions of people to be able to qualify to purchase a home.
Another theory is that home prices no longer “automatically” go up over the years and that a home purchase is not the long-term investment opportunity it was considered to be 20 years ago.
For this purpose, it does not matter what the reasons are. What does matter is that renting is the best, if not the only, option for a lot more people. Because of this, landlords know they can charge more and still offer value compared to the cost of owning a home.
In communities where there are a lot of apartment and rental opportunities, the competition is heating up. Special amenities are now a factor for some renters, who may choose to live where they have a fitness center, indoor pool, lobby service, and other conveniences.
Other factors include the surroundings, such as proximity to bus or train, parking, grocery stores, restaurants, schools, and/or their work.
Rent costs are also determined by area property values, which means they are usually within range of the cost of ownership. A renter may prefer this over spending thousands of dollars on a down payment, facing a long-term mortgage, not having the flexibility to move every six months to one year, and not having to responsible for major maintenance costs.
To put it less diplomatically, some people would rather call somebody at 3 AM when the furnace goes down than have to pay the emergency repair or replacement costs themselves.
Your Self-Directed IRA provides the ability for you to hire a Property Manager to do all of the work for a rental property which you own. This includes services such as janitorial, maintenance such as lawn care and snow plowing, screening tenants, and collecting rents each month. You can factor such operating costs in with your monthly costs and income.
This means that you could own rental property hundreds of miles away, generate a monthly cash flow for your Self-Directed IRA. You would only need to spend a few minutes each month to pay the Property Manager (from the IRA and not your pocket) and to deposit the rent money you receive.
Since you can look for your best deal, you are able to research rents, availability, and income potential in a variety of cities and communities until you find the best deal for your situation.
Owning rental property also creates long term growth opportunities. Many real estate investors use their monthly cash flow toward purchasing additional rental properties and growing their portfolio. Some investors, for example, have a 20-year plan to then own 10 separate properties, each generating $1,000 per month in positive cash flow.
This means that by 20 years later, they would have at least $10,000 per month flowing into their Self-Directed IRA which is tax free.
With more and more people turning toward renting a house or apartment, it means more and more opportunities for you to gain by using your Self-Directed IRA.