Real estate (or real property) is raw land, buildings or structures on the land, and natural elements attached to the land, such as trees, minerals, and water. It does not include personal property, such as vehicles or equipment, that is not attached to land.
Real estate can be a type of alternative assets investment that offers diversification beyond the traditional IRA stock and bond options, like mutual funds, that are tied to the stock market. With many ways to increase value and create passive income, real estate is a flexible and attractive alternative investment option for creating a diversified portfolio for your retirement plan. Using a Roth IRA to purchase property allows your IRA funds to grow tax-free, offering a powerful strategy for maximizing long-term tax benefits on your property investments.
True diversification
Flexible valuation
Multiple types
Depending upon the type of real estate purchased, there is also more than one way to buy real estate and grow the value of the investment. In addition to property value increases intrinsic to the real estate market, values may increase as a result of improvements made to the property and/or when the property is used to generate income (e.g., commercial leasing of an investment property). There are also IRS tax advantages to investing in a real estate IRA as long as you follow IRS rules regarding prohibited transactions with your real estate purchase. Your financial advisor can help you better understand and consider specific investment strategies as they relate to real estate.
Understanding cash flow is essential for effective real estate investing, whether you're renting out properties or flipping houses. Cash flow refers to the net income generated from real estate assets after accounting for expenses such as property management, property taxes, and depreciation. Rental income from renters contributes to positive cash flow, while interest rates on any loans or mortgages can affect your overall returns. A solid investment strategy involves balancing these factors to maximize cash flow. Commercial real estate can provide significant cash flow opportunities, though these investments are often illiquid and require a substantial down payment. Additionally, capital gains from the appreciation of property value can enhance your investment portfolio, providing both short-term rental income and as a long-term investment.
To further leverage your real estate investments within an IRA account, you can use a non-recourse loan, which allows you to finance property purchases without risking your other IRA assets. With a self-directed IRA, your real estate investments can grow tax-deferred, meaning you won't pay income taxes on the gains until you begin taking distributions in retirement.
Certain individuals, including the IRA owner, family members and other disqualified persons, cannot use, maintain, or provide services to the property while the IRA has direct or indirect ownership interests.
Once you have assessed your investment decisions and determined that you’re open to diversifying your retirement funds investment portfolio and become a real estate investor, it can be purchased with your Self-Directed IRA (SDIRA) or other retirement accounts through Mainstar Trust Company. As your IRA custodian, we can help you navigate the world of personal finance account types and asset classes, create a retirement portfolio brokerage account, manage your IRA investment with exchange-traded funds (ETFs), and more.