So, you have decided to invest in real estate. Great idea! Not only is it a recommended way to balance off those financial assets in your portfolio, but it can provide a continuous stream of income that could be coupled with capital appreciation when you decide to sell.
Before any of this can happen, however, you need to choose which type of real estate fits into your plans. While any investor can choose among options like apartments, commercial properties, and vacation homes, the most popular choice is multifamily real estate.
Many people are turning to their Self-Directed IRAs to invest in real estate. And it makes sense. If you have been working for several years and have diligently funded your IRA, you will likely have accumulated a respectable balance. And multifamily real estate is an excellent way to get those funds working on your behalf.
As long as your property is in a good location, provides some amenities, and has curb appeal, you should be able to entice prospective renters to become your tenants. Here are the four primary benefits of becoming a landlord:
- Steady cash flow
With a multifamily property, there is little or no chance that all of your units will be vacant at the same time. That means that there will cash flowing into your Self-Directed IRA every month. Compare that to an investment in a single-family house where all of your income stops when your tenant leaves, and it does not start up again until you find a new one.
The more units you can fill, the more tax-sheltered cash will flow into your Self-Directed IRA. The funds can then be used for other investments or saved to cover any future expenses such as maintenance and repairs.
- Fewer vacancies
If your rental property is in a safe and desirable location, your occupancy rate should remain high. If you add or upgrade the amenities—safe laundry room, storage units, a workout room with modern gym equipment, for example—you increase your chances of having your units fill up quickly.
Combine those perks with the economic reality of the increasing prices of homes and rising interest rates, which put houses out of the reach of many potential buyers, and you will probably be hanging out the “No Vacancy” sign more than once.
- The convenience of maintaining your properties at one location
If you have single properties scattered about, you need to be driving around to check on them and sending your maintenance people to various locations to work on them. Having all of your tenants under one roof is convenient and economical. Time is money, and it costs a lot more of it if you must send your hourly workers to a distant property to fix a leaky sink!
Keep in mind that single-family homes are much more likely to require lawn mowing and landscaping, and if you assume responsibility for maintaining the grounds, your costs will escalate.
- More opportunities to generate profits
Under the right conditions, most of which you can control, you should be receiving monthly income from multiple tenants, not just one or two. But there are even more gains to be had on the back end when you decide to sell. Unlike a single-family house, whose selling price is based on the value of the land and structure only, multifamily property prices also take into account the income that the property is currently generating. That typically results in higher resale value and greater profits.
Whether you are using personal funds or investing through your Self-Directed IRA, if you have chosen an excellent location and maintained the property, you could be in for a lucrative profit if you decide to sell it down the road.
A Self-Directed Real Estate IRA provides you with the freedom to invest in alternative assets such as multifamily properties. You could also choose from single-family homes, duplexes, condominiums, land, commercial properties, and more.