The “Self-Directed Real Estate IRA.” It sounds like an expensive proposition, doesn’t it? But you’d be surprised. In fact, this name is really just a nickname; it refers to using a Self-Directed IRA for investing in real estate assets. It’s not technically a unique IRA, but instead a unique strategy of investing retirement funds into a particular type of asset class. And given how many people like investing in real estate for retirement purposes, it’s worth considering. That’s especially true if you want to invest in real estate yourself—better understanding why retirement investors love this asset class, and why the Self-Directed IRA is such an ideal vehicle for doing it.
Can You Invest in Real Estate With an IRA?
The simple answer: yes. Many people are so used to working with a traditional brokerage for their IRA that they don’t realize the full range of options available to them. For example, if you have a Roth IRA through a traditional brokerage, you’ll likely find that you have plenty of choices—but none outside the bounds of the funds that the brokerage has to offer.
In contrast, using a Self-Directed IRA custodian to help you with administering the account means that you can issue buy/sell orders for real estate directly, which in turn gives you all the power of investing with the protections that come with an IRA. The Self-Directed IRA company who helps you is not going to offer investment advice; instead, they serve as administrators on the accounts, helping to execute buy and sell orders and take care of paperwork issues. You’re the one responsible for doing due diligence on the property, as well as making sure that you adhere to the rules and regulations of working with IRAs.
But the short answer remains yes, you can use an IRA to invest in real estate. For that reason, many investors with sizeable IRAs often transfer those IRAs to a Self-Directed IRA administration firm to begin investing in real estate.
Why Invest in Real Estate?
Real estate is a powerful retirement asset class because it’s one of the most reliable ways to generate passive income. For example, you can be 70 years old and ready to retire from the working world; but if you have a real estate property, you might continue to generate money even though you’re not doing additional work. That money comes from charging rent—for example, maybe you’re renting out a single-family home.
However, with a Self-Directed Real Estate IRA, you can still hire a property manager to handle these issues. The property manager will be responsible for depositing the rent checks into your IRA, for example. This property manager will also help you avoid taking care of the property directly. Because of the tax protections in the IRA, you’ll have to adhere to some rules that keep your personal life separate from the investment property you own.
But otherwise, real estate can be a powerful asset class that helps you build a more diversified retirement portfolio. And because of the potential for generous returns through profit taking or through charging rent, real estate remains one of the more powerful ways for retirement investors to put aside a large sum of money to help them retire.