You may have already heard it, but a Self-Directed IRA makes it possible for investors to put retirement money into nontraditional asset classes like real estate. For many investors, this is great news. It means that they can put their experience in real estate investing to use with their retirement plan. But many people think there is a “catch.” Are there limits on the type of real estate that an investor can own within a Self-Directed IRA?
There are certainly limits to retirement investing no matter what kind of IRA you use. However, you would be surprised at the amount of freedom possible within a Self-Directed IRA, especially when it comes to real estate investing. You will not be limited to single family home rental units, for example. Let’s look at the different types of real estate available when you use a Self-Directed IRA;
Single Family Homes
For many real estate investors, this is the bread-and-butter: renting out a single unit to a single family is usually a simple way to run the formulas and determine whether or not a piece of real estate is going to turn a profit. Single family homes are simple, of course, but they can also form the bedrock for an investment strategy that lasts years if not decades.
Multi-Family Homes or Multi-Unit Homes
One of the most popular ways of investing in real estate is to purchase a single property that features multiple family units. Multi-unit homes are an opportunity for an investor to make an immediate profit and holding one within a Self-Directed IRA can provide some additional security and income in retirement.
Commercial Property and Business Rentals
As an investor, you always want to make sure that your real estate is a powerful source of income. One sure way to do that is to invest in a key piece of commercial property that promises to offer money through a lease. Commercial real estate has seen a tricky year given the COVID-19 pandemic, but many businesses still need to keep their physical presence to maintain a business, and that creates opportunity for investors who are looking for a stable source of money into their retirement account.
Investors do not always have to invest in rent-generating properties. They may also speculate on land, such as purchasing raw land that they believe will go up in price as the demand in the area increases. Land can be re-sold to developers, for example, who want to turn that land into homes.
An apartment building is an obvious step up from the usual route of buying one-to-three-unit investment properties. However, it can also represent a stable way to build long-term wealth. Because apartment buildings have a greater diversity of tenants, which can in turn diversity the strength of a retirement portfolio. An investor with an apartment building, for example, will not have to rely on any particular tenant making rent. However, the same risks that come with all real estate investing would also apply to apartment buildings, even though the increased diversification can be seen as a benefit.
Investing in Real Estate with a Self-Directed IRA
Keeping all of this in mind, it is clear that investors have plenty of options when they want to consider investing in real estate with a Self-Directed IRA. We cannot choose them for you. However, we can note that it is important for investors to consider their own choices and how an individual choice might fit within a Self-Directed IRA.