Understanding the vast array of options for saving for retirement can be a difficult task for even the most seasoned finance expert. In addition to more traditional options like Roth IRAs or 401Ks, self directed IRAs are becoming increasingly popular. One potential for these types of accounts is investing in real estate. If you want to know if self directed IRA real estate loans are the best option for you, check out the list below outlining the basics about this type of investing.
1) First Things First Before understanding self directed IRA real estate loans, you first have to understand that the basics of IRAs. While most people know that IRAs are a type of account that gives you tax benefits when saving for the future, few people realize that these accounts can invest in things other stocks, bonds, or mutual funds. One type of investment that is available is real estate. An IRA loan for real estate would allow you to use your IRA contributions to purchase real estate that is used solely as an investment property to help support your long-term investing strategy.
2) Potential Advantages Once you understand that an IRA can go beyond the basics, setting up a self-directed IRA that allows for real estate investment can have real advantages. If you’re younger, investing in real estate allows you to benefit from the large potential gains of real estate investment while insulating you from the ups and downs of the market. Plus, if you are planning to invest in real estate with funds other than your IRA, you would be missing out on tax benefits that can potentially save you thousands of dollars now and down the road.
3) Follow the Rules An important thing to know about self directed IRA real estate loans is that there are several regulations. You will most likely need to work with a professional to understand them all, but keep in mind the basics. First, if you can put a significant down payment on a property, you can purchase a variety of property types from townhomes to commercial real estate, so long as the rental profit will yield a positive cash flow. Next, remember that any real estate purchased in this way cannot be used for your benefit today. No vacation homes or office space that you intend to use are eligible. Last, if you do not have enough money in your IRA to purchase a property outright, you can use outside financing. In this case, however, the loan must be a non recourse real estate loan.
4) Commit to the Long Term One more important thing to think about is that you must be able to use funds from your IRA to pay for the ongoing costs of maintaining your property. Plan your investment strategy accordingly to allow for this stipulation.
5) Join the Crowd Around 46 million households in the Untied States have an IRA account. Though only about 2% of these accounts right now are self directed IRAs, this number continues to grow. Most self directed IRAs deal in real estate loans because of their huge benefits to your long term saving. If this option is right for you, you will be joining a trend that has the potential to grow your wealth and secure your future.