Purchasing real estate within an IRA can help secure your retirement and protect your earnings from excessive taxes. So more and more people are using their IRAs to invest in real estate, but there are pitfalls. This is what you need to keep in mind.
You probably know that you have a trustee who is responsible for maintaining your account. He or she is likely responsible for managing a number of similar accounts, as well as performing other functions within the company or brokerage.
Only a few trustees are experts at purchasing real estate within an IRA. In fact, only a few brokers offer their clients such an option. Most stick with traditional investments like stocks and bonds. And, there is nothing wrong with those kinds of investments. It’s just that in an ever-changing economy, diversification is the key to maximum growth.
In other words, if you want to use your IRA for real estate investments, you still want other assets. Trusting real estate alone is no smarter than trusting the stock market alone. The ideal IRA custodian is one that offers its clients a wide variety of investment options. A company like Equity Trust is a good option.
Now, assuming you have a self-directed IRA with the right custodian, you can start buying real estate within an IRA, if you have the time and knowledge. You don’t want to buy just any property, so you need to know which ones to look for.
If you’re already a seasoned real estate investor, then you know which deals have the potential to be profitable. The reason he wants to use his IRA for real estate investments is to increase his earnings. The costs related to the deal come out of the account and the profits go back into the account.
Those earnings are tax-free or tax-deferred, depending on whether you have a traditional or Roth IRA. In total, you can earn up to 50% more per transaction by using your IRA for real estate investments, instead of using other funds.
Now, if you have little or no experience, buying real estate within an IRA can cause you a lot of stress. It is as easy to lose money as it is to win it. It would be wise to get help. Your account custodian cannot advise you. They just do what you tell them to.
As the use of IRAs for real estate investing is becoming more popular, some knowledgeable investors are offering their services to the inexperienced investor. If you fall into that category, then they can help you avoid the pitfalls and unnecessary stress by helping you locate the right property. At the very least, they will save you some time.
If you’re still working full time and have a family, time is a precious commodity. Do you really want to spend your weekends looking through the classifieds, driving through neighborhoods and looking for great deals?
Probably not, but buying real estate in an IRA may be a good idea for you. You can use real estate to increase the value of your IRA and, if you make the right deals, you can secure your future faster than more traditional types of investment. You just need someone to help you find those deals.