The world of investing can be big and intimidating—especially in a world of rising interest rates, rampant inflation, and uncertainty in the economy at large. That’s why investors often turn to real estate, which a recent USA Today article called “an incredible investment, a great business, and a fantastic one-person moneymaking machine—all in one.” At American IRA, we also like to remind people that it’s possible to use a Self-Directed Real Estate IRA, or a Self-Directed IRA that holds real estate, to realize tax benefits to this style of investing.
For people who want to start a small business that generates cash, coming up with ideas can be difficult. But the recent USA Today article highlights just how easy it can be to start generating cash flow with real estate, provided that the investor chooses wisely.
Why People Invest in Real Estate IRAs
Why do people like real estate, especially in times of economic uncertainty? There are a few reasons and benefits, including:
- Leverage. As the recent USA Today post pointed out, leverage is possible with real estate, which means an investor can acquire more real estate than they have cash on hand. This is tremendously beneficial, because it opens up the possibility that an investor can acquire more cash flow than their current assets allow. This requires due diligence, of course, and making sure that the real estate in question is the right investment for you.
- Cash coming in. During inflation, having cash coming in that’s tied to the general prices of the market is a wonderful way to hedge against the uncertainties of the markets. Real estate property generates cash flow via rent, which means that investors can recoup much of their investment over time without losing the underlying asset. In other words, real estate is a piece of property that can pay you—or your Self-Directed Real Estate IRA—to own it.
- Property appreciation. Some people purchase stocks that don’t pay dividends. Why? Because they believe the value of the stock will appreciate over time. It’s the simple mantra of buying low and selling high. It’s the same in real estate, where you can buy a piece of property and eventually sell it at a profit. However, because real estate also has the potential to generate outstanding returns via cash flow and rent, it’s possible to make money on real estate twice, putting that money into your Self-Directed Real Estate IRA.
Real estate isn’t a get-rich-quick scheme, nor is it a free pass to more money. However, real estate does have innate value. After all, people will always need places to live and work. And if you can incorporate real estate into a retirement portfolio, you’ll be securing one of the most valuable types of assets possible.
Using Real Estate in Retirement Investing
Although the USA Today article did a great job highlighting the benefits of real estate, we think it can go a step further. We can talk about the benefits of real estate in retirement accounts, because it’s such a popular way for people to use their Self-Directed IRAs. With a Self-Directed IRA, you can use the tax benefits of a retirement account to hold real estate assets, which gives you the benefits of cash flow and property appreciation as you save for retirement. Even better, you can postpone the taxes within a retirement account until hitting retirement age, which can help you grow as much as possible in the meantime.