Today’s interesting real estate market is creating some great opportunities. Even though the housing market is somewhat on the rebound, now is still a great time to invest at historically low prices. Real estate is a great way to diversify retirement investments.
Over time, real estate investments have afforded many people the powerful combination of appreciation and income. The purchase of real estate with a self-directed retirement plan is a popular choice of Midland IRA clients for this and other reasons.
Why Invest in Real Estate with an IRA?
A self-directed IRA gives you the freedom and control to invest retirement funds in non-traditional assets. Real estate is by far the most popular asset in this class that investors choose, hence the term “real estate IRA.”
When you invest with IRA funds, all gains accrued by those assets grow inside the account tax-free. Additionally, the proceeds from the sale of a piece of property in an IRA can be reinvested into your next property without having to allocate a large percentage to the government via federal and state taxes. This allows you to have more principal to grow for your retirement and also to reinvest.
Types of Property Your IRA Can Own
- Single-family and multi-unit homes
- Apartment buildings
- Commercial property
- Farm land
- Foreign land
- Improved or unimproved land (leveraged or unleveraged)
- Trust deeds and tenant-in-common interests (TICs)
A Case Study of How Real Estate Works in an IRA
Bob has $250,000 in a Roth IRA at a national brokerage firm. Bob has watched the gains his IRA go up and down over the last few years and wants more security.
Bob’s realtor asks him if he has heard of a real estate IRA. Bob was unaware that real estate could be held in his IRA as a way to diversify retirement investments. However, he has owned rental property purchased with personal funds, and liked the control and stability of steady income. Real estate is currently low in terms of price, so Bob believes it is a good time to buy and decides to do so with a real estate IRA. He opens self-directed Roth IRA at Midland and transfers all funds of his existing IRA with the broker into his new account.
Bob uses his self-directed funds to purchase two properties: a rental duplex for $125,000 and a bank owned, single-family home for $75,000. He plans to rent the duplex for a long-term source of retirement income, and rehab-and-flip the single-family dwelling for immediate profit.
Because the retirement account is purchasing the properties, both will be titled in the name of that IRA. All income and expenses associated with both assets flow directly into and out of that tax-sheltered account.
Bob has the IRA spend $5,000 to spruce up the rehab home with new paint, carpet, and landscaping. The property is listed with realtor and sold for $115,000. The proceeds of the sale are deposited into his self-directed Roth IRA. The approximate gain of $35,000 is tax-free, allowing considerable capital to reinvest in a new venture.
This is the power of a Midland self-directed real estate IRA.
With over 25 years of experience, Midland IRA provides clients with education and support to put their retirement accounts to work for them and diversify retirement investments through self-directed plans.
To learn more, contact us today or spend some time exploring our Real Estate IRA Center. You can also visit our event calendar and plan to attend webinars or local seminars we hold often to educate investors on self-directed accounts and alternative investments.