The COVID-19 Pandemic is affecting everything—that is not in dispute. But for investors who are focusing on a real estate investing strategy for their retirement, might there be a strategy that can help them adhere to the rules of social distancing while building a retirement nest egg? The good news about using a Self-Directed IRA is that it is built for social distancing. The IRS already wants investors to maintain a distinct level of separation between personal accounts and retirement accounts. And when investing in real estate through a retirement account, it is not hard to adjust to a new reality in which the world might not be back to regular social interaction for quite a while. Here is why.
Self-Directed IRAs: Managing Remotely
When you invest in a real estate property through a Self-Directed IRA, you are doing something very different than investing with your personal funds. You have to maintain a distinct boundary between personal assets and retirement assets. That means that you will not be collecting rent personally, performing repairs personally, and otherwise maintaining an investment property the way you might if you owned it with personal funds.
Using a Self-Directed IRA means you will be working through a property manager. Many of these property managers will already have systems in place for maximizing social distancing or accepting payments electronically. This means minimal processing, allowing the real estate to continue to generate income even in the midst of a pandemic.
Using a Self-Directed IRA During a Pandemic
What about investors who are looking for opportunities for investments during a pandemic? Generally, housing prices have stayed high, and in many pockets of the U.S., home sellers are still finding that it is a seller’s market. This is because the demand for new homes has not necessarily waned, but the supply of homes on the market has gone down—or at least slowed—due to the slowdown in economic activity. With a lower supply of homes on the market, it is harder to find a single home rental property available for a lower price.
This is in line with how real estate typically performs. Real estate tends to be a slow-mover—it does not have the ups and downs of the stock market, except in local communities, depending on a number of factors.
For this reason, a real estate investment can be considered a hedge against crises like the COVID-19 pandemic. People will always need homes, keeping the demand for real estate relatively stable.
Does Real Estate Help Hedge Against Unforeseen Events?
The price of real estate is a risk just like any other. We saw that during the 2007-2008 real estate crash. But because real estate is such a finite investment, it can offer a stabilizing factor in a retirement portfolio. And investors who make wise investments in real estate are able to continue to see gains in their retirement account even when the stock market is down.
Using a Self-Directed IRA is a great way to diversify out of the stock market and take on a different kind of portfolio. By managing your own investments, you will find that it is easier to take on a “broad” portfolio of diversified assets with less correlation to each other than stocks in the market. With this increased diversification, you will find that your overall portfolio moves a lot less than an all-stock portfolio, giving you a sense of security. But we at American IRA do not offer specific investment advice; with a Real Estate IRA, you are in charge of your own destiny. Even when there is an unforeseen event—like a pandemic—going on around you.