Self-directed IRAs are favored by investors who want to control their own retirement funds and decisions. Doing so allows account holders to choose alternative assets they are familiar with and manage them accordingly, in hopes that investing in what they know best increases their retirement earning potential.
The pool of alternative investments permissible in self-directed retirement plans is vast. Account owners enjoy the freedom to choose from alternative assets that include, but are not limited to, notes and mortgages, LLCs and trusts, oil and gas options, timberland, precious metals…and the list goes on. However, real estate is the most popular investment in a self-directed retirement plan. Besides offering diversity to retirement portfolios, there are a few other benefits these assets present.
1. Potential of quick return on investment
While no investment is ever guaranteed, those familiar with real estate assets understand the potential a viable piece of property may hold. From foreclosures in decent neighborhoods to rehab-and-flips, many investors are taking advantage of these opportunities to increase earnings in their IRAs. Investing in tax liens and deeds may also prove successful in building retirement income over a fairly short period of time.
2. Long-term gains through rental income
Rental properties are popular investments in a self-directed IRA. Whether commercial (such as office space) or residential property (single and multi-family homes, condos, etc.), these assets often provide a steady source of income in a retirement plan.
3. Buy and hold now to accrue larger return on investment later
Long-term planners understand the value of holding on to real estate for an extended period of time. Dips in property value often rebound years down the road. For example, investors take on raw land for this purpose in hopes that its overall value will increase as time goes by, especially if the property has development potential in the future.
4. Self-directed IRAs can partner funds to acquire investments
Just as they may with any other alternative investment, self-directed accounts can partner funds with another person or entity to obtain real estate assets. Your IRA can partner with your own personal funds or funds that you personally guarantee (like a home equity line of credit). Your IRA can also partner with funds from another person or IRA. In this instance, your IRA owns a percentage of the asset based on the amount of funds it contributed towards the investment. Income and expenses are assigned based on that percentage, as well.
When self-directing your IRA, you are able to make choices based on your own knowledge of different investment opportunities. You are not bound by products (such as stocks, bonds, and mutual funds) that the average IRA custodian sells or advises you add to your retirement portfolio. Instead, you can put your own expertise to use and take on investments you feel will propel your retirement income into the realm you desire.
However, with the freedom of choosing your own investments comes the responsibility to practice due diligence required to fully vet the assets you choose. Every investment is a risk. It is up to you to determine if the risk is worth taking and to understand the elements involved before making your decisions.
Advanta IRA is a self-directed retirement plan administrator that serves clients across the nation. We do not sell assets or give investing advice. We do provide seminars, webinars and other events designed to educate individuals of the possibilities real estate and other alternative investments present in self-directed accounts.
Learn more about real estate in an IRA by visiting the real estate investing center of our web site.
To learn more about self-directed retirement plans, or if you have questions regarding this article, please contact us.