Most Americans know they really should be saving and investing for retirement. But most Americans are also clueless about how much they realistically need to have saved up in order to provide for a secure and acceptably comfortable retirement income. Self-Directed IRAs are just part of the retirement picture that also includes conventional assets, Roth IRAs, pensions, 401(K)s, 403(b)s, Thrift Savings Accounts (for federal employees), annuities and private savings outside of retirement accounts.

The problem is pervasive: A new study from Bankrate.com finds that more than 60 percent of Americans surveyed have no understanding of how much they need to save to accomplish their retirement goals. 69 percent of millennials between ages 18 and 67 do not know – which is excusable, considering their youth. But Baby Boomers didn’t fare much better: Fully 58 percent of Boomers are unable to calculate their required requirement savings or budgets. 56 percent of Generation Xers surveyed reported they didn’t know.

Other findings:

• 8 percent of those responding indicated they never plan to retire – though disability and economic dislocation have a way of taking those decisions out of individuals’ hands.
• 8 percent estimated they needed over $1 million to retire, and 15 percent estimated they would need to amass between $250,000 and $1 million.
• 8 percent reported they believed they would need $250,000 or less to retire.
• 61 percent reported they did not know. Which makes it impossible for them to make rational decisions about how much they need to save each week, month and year as their retirement dates march inexorably closer.

Self-Directed Real Estate IRAs can help

One way to close the gap: More Americans should consider Self-Directed IRAs – particularly Self-Directed Real Estate IRAs. The Self-Directed Real Estate IRA technique provides a number of powerful benefits that are not easily replicated using other types of asset classes:

• Tax-deferred growth of Self-Directed IRAs, Self-Directed Solo 401(K)s, Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs
• Tax-free growth of Self-Directed Roth IRAs and Roth 401(K)s
• Protection from creditors in the event of bankruptcy
• Consistent rental income that can be reinvested or used to support you and your family in retirement
• Potential for increasing income over time as you are able to increase rents
• Potential for capital appreciation
• Easily obtainable leverage – lenders are generally more willing to lend on real estate than most other kinds of assets, and on better terms.

Few other types of investments provide this combination of benefits to the individual investor.

Fortunately, the Self-Directed IRA structure is flexible enough for investors to build quite significant real estate portfolios over time by leveraging the tax benefits of IRAs and other retirement accounts.

Real estate prices can be volatile, of course. But rental real estate tends to pay investors handsomely via rental incomes while they wait for prices to recover. You do not need to sell at a loss: You can continue to collect regular rental income from your Self-Directed Real Estate IRA investment property for years.

Self-Directed Real Estate IRA owners should be aware of unrelated debt-financed income tax: If you borrow money to purchase an investment property, part of your income and part of your capital gains on sale of a Self-Directed Real Estate IRA property will not be entirely tax-free. Any earnings and realized capital gains attributable to borrowed money, rather than your own savings and contributions, will generally be taxable as income, under UDIT rules. However, as you pay down the mortgage on the property, less and less of your income and capital gains will be taxable.

(Tip: Consider paying off any loans on Self-Directed Real Estate IRA properties, if possible, before selling them, to avoid having to pay UDIT on capital gains attributable to other peoples’ money.)

Another idea: Self-Directed Solo 401(K) accounts also support self-directed real estate investing. If you are self-employed or own your own business, you can establish your own 401(K) or Roth 401(K) and use it to purchase investment real estate directly.

However, Self-Directed IRAs and Self-Directed Solo 401(K)s are no panacea: In order to have the greatest chance of success, investors should have a clear idea of what their retirement income needs are, and what kind of savings it will take to amass an investment portfolio capable of generating the income required over many years of retirement.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

It has been a nice run for Self-Directed Real Estate IRA owners focused on the multi-family residential market, but we are starting to see some signs of a slowdown in investment activity.

New data from CBRE and Real Capital Analyst indicate that total multi-family investment activity slipped by 6.9 percent year-over-year, as of the close of Q2 2018. Capitalization rates, defined as the annual net operating income of the property divided by the property value, edged down to 5.5 percent, largely due to a declining investor interest in so-called ‘garden-style’ apartment buildings.

However, the high-rise market continues to attract strong investment activity, with 12.4 billion in sales marking an increase of 12.2 percent on a year-over-year basis.

A disproportionate share of investment dollars is flowing to the already highly-appreciated markets in Los Angeles and New York, with the hot Dallas market coming in third, well behind the other two metros. But that may well leave opportunities in the underserved Southeast, including here in North Carolina, where economic growth, employment prospects and housing demand remain strong, and where rental yields are still attractive to Self-Directed Real Estate IRA investors interested in multi-family housing.

Data from the Apartment Loan Store, a lender that specializes in the multi-family market, indicates that cap rates in and around Charlotte, North Carolina, are in line with national averages, though they vary by type of property:

New Luxury Metro                 4.62%

Class A                                                     5.14%

Class B                                                     5.67%

Class C                                                     6.45%

Value-added Acquisitions     6.34%

The average multi-family rent in Charlotte has increased 2 percent over the past year, also according to the Department Loan Store, though the trend has been towards flattening, overall.

Baby boomers who have recently sold their homes have been migrating to the rental market, offsetting Millennials who are increasingly joining the ranks of homeowners.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

Real estate deserves consideration in anyone’s long-term investment portfolio. Some investors are content to expose themselves to real estate via REITs and straight-ahead stock companies within a larger retirement portfolio. Many of our own clients find they can get better returns on investment via direct ownership of investment properties within their own retirement accounts, using a Self-Directed IRA, Self-Directed Real Estate IRA, Self-Directed Solo 401(K), Self-Directed SEP IRA or Self-Directed SIMPLE IRA account. They simply use the cash in these accounts to purchase investment property and hold it, with their IRA collecting rents and paying expenses.

After working closely with hundreds of successful Self-Directed IRA landlords – men and women who own real estate directly within their retirement accounts – we have come up with some important hints and tips for finding profitable investment properties with a relatively low degree of risk.

• Compile your own comps. Do not trust the big internet sites like Trulia and Zillow for estimates on what any specific home may be worth. First, everyone else has access to that data, so you will not be at any significant advantage by relying on it. Second, there is no substitute for strong local knowledge of the neighborhood – something that no large nationwide database can provide. Compile your own comps, or work with an agent who has extensive experience with homes in this particular area. Better yet, consult a professional appraiser.
• Hire a building inspector. Most real estate investors – even experienced ones – inspect just a few homes a year at most. A professional building inspector visits hundreds of homes each year. Few ordinary investors can match that kind of experience, which can normally be had for just a few hundred dollars. That experience can also save you from incurring thousands and even tens of thousands of dollars in needed repairs and renovations, which could destroy the profitability of your Self-Directed Real Estate IRA property.
• Work with a title company. This is the most reliable way to ensure that your new Self-Directed Real Estate IRA investment property has a clean title, free of encumbrances from unpaid property taxes, contractors’ liens, old mortgages, claims from heirs and estate beneficiaries, lawsuits and judgments or pledges as collateral.
• Be skeptical of pro forma Occasionally, sellers will show you pro forma accounting documents that show various earnings and profitability projections. These are nice but consider them an absolute ‘best case’ presentation. In 99 percent of actual cases, the Self-Directed Real Estate IRA property will show income and expenses substantially lower than what the pro forma numbers assumed.
• Look over key property management documents. You will want to look at the previous owner’s rent rolls and compare them to bank statements. Do rental collections match the actual bank statements? Are rents claimed on the rent roll but do not show up on actual bank statements? Does the discrepancy match the non-payment rate?
• Account for renters’ deposits. State laws vary, but the general rule is landlords must keep renters’ security deposits in segregated accounts. Before you purchase a rental property, ensure your account for each tenants’ deposit in full and that you have access to these accounts, so you can release them to the renter as required by law, or use them to offset expenses that the deposits are intended to cover.

 Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

Most Self-Directed Real Estate IRA investors already know that you can charge rents on investment real estate, which can be reinvested for retirement or used to support current projects.

But professional property managers also understand that your income opportunities are not necessarily limited to rental income. For Self-Directed Real Estate IRA property owners who are creative and resourceful, there are endless possibilities for generating ancillary income streams from real estate investments, over and above the normal rental income.

This is especially true for multi-family units and properties where there is a significant amount of land.

Here are some ideas we have seen on different kinds of properties:

• Vending machines
• Coin and card-operated laundry
• Parking space rental for special events at nearby venues
• Garages
• Storage units
• Short-term lease premiums
• Water delivery service
• Mineral rights
• Advertising/billboards
• Thoroughfare/passage rights
• Operating a bodega, snack bar or convenience store primarily for residents, or creating one on site and leasing it out to a third-party vendor
• Buying nearby real estate space and installing needed businesses
• Farming and ranching
• Leasing for special events
• Pest control fees
• Valet trash collection
• Delivery services
• Concierge services
• Car detailing/washing
• Whole building WiFi
• Recycling programs
• Bike storage
• Pet rent fees (excluding service dogs and therapy dogs)
• Communication tower rental
• Rental furniture
• Cable and internet bundling service deals

.. and many more!

Of these, vending machine income is among the more common options, and can work well even in smaller apartment complexes and in both residential and commercial contexts. Today’s landlords have more options that can efficiently generate noticeable additional income within their Self-Directed Real Estate IRAs with minimal cash outlays or effort required on the part of the investor.

Do not limit your thinking to snacks and soft drinks: Today, vending machines commonly dispense everything from toilet paper to cell phone chargers.

Increasingly, the trend in recent years has been for Self-Directed IRA landlords who own multi-family units to partner with specialized laundry room vendors, rather than attempt to do all the legwork themselves.

Having some furniture, you can rent out with a unit also increases your flexibility to serve young families, people traveling for work and relocators, while still getting some income for your trouble.

Trash collection fees, lease buyout fees, late fees, non-sufficient funds fees and other reasonable fees can also provide a bit of additional cash flow to cover expenses.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.

The much shorter answer to the question “What investments can be done with a Self-Directed Real Estate IRA?” is almost anything. In addition to actual real estate, you can instead purchase other investment vehicles such as tax liens, mortgage notes or real estate options. These investments allow you to profit from real estate without owning the land.

The IRS does not publish a list of permitted investments, but only the short number of fellow investors or people you may not do business with who are called “disqualified persons.” These forbidden people are yourself, your spouse, parents, children, grandchildren and spouses of your children or grandchildren. However, because IRAs are legally independent entities, you may do business with anyone’s Self-Directed IRA. Also, neither you nor any disqualified persons may benefit from the property in any way. This includes staying there, even for one night. A disqualified person cannot stay on the property even if that person pays rent. You also cannot directly buy from or sell any property to a disqualified person nor employ them for any reason such as maintaining or managing the property. Neither you nor any disqualified person can perform any services on this real estate, even if you do it for free. This labor would be seen as benefitting the Self-Directed IRA through an in-kind transaction, so it is forbidden.

However, certain family members such as siblings, aunts, uncles, and cousins are not considered to be “disqualified persons.” Therefore, they can invest in, purchase, use, or work on the property held by your Self-Directed Real Estate IRA without any restrictions.

All income from the property or expenses to improve and maintain it must also be paid by the Self-Directed IRA, not from your personal funds. Legally, you never see any of this money, as it all remains within the Self-Directed IRA. Although you may not do any business with a disqualified person, your Self-Directed Real Estate IRA can “partner” with them when investing in it. The purpose of partnering is to increase the amount of capital which the Self-Directed IRA has access to. However, when partnering all funds must be kept separate from each partner when buying, selling or using the property in any way. This prohibition also extends to changing the percentage of ownership controlled by any investor, as that is considered a sale or purchase.

Although there are significant tax benefits from using a Self-Directed IRA, there are some taxes which do have to be paid. As they say, nothing is perfect. For example, you may have used financing for the investment in your Self-Directed Real Estate IRA. Such financing is permitted as long as the loans are non-recourse. This type of loan is secured by collateral, such as property. Should you default on the loan, the lender may seize the property, but cannot look to the borrower for any other compensation if the value of security is insufficient to pay the entire loan balance. This protects the rest of your Self-Directed IRA assets from being seized by the lender.

Although you are prohibited from personally benefitting from property held in your Self-Directed Real Estate IRA while you are still of age to deposit into the account, after you retire you can then use the real estate as a home or benefit from it in any way. Also, after you begin making withdrawals from your Self-Directed Real Estate IRA, you can take real estate as an “in kind” distribution instead of cash.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Or visit us online at www.AmericanIRA.com.