Do you want to know how to start investing in real estate? This is a viable long-term investment for your retirement fund. The volatility of the stock market is usually a reason why a lot of investors opt to look for other options. Real estate investing may be a great addition to your wealth accumulation strategy. Here are some reasons why you should invest in real estate investment in your IRA.
How To Start Investing in Real Estate And Why Do It
In this article:
- The Tax Benefits
- Real Estate Investments, To a Degree, are “Inflation-proof”
- You’re in Control
- A Few Notes
1. The Tax Benefits
Real estate investments inherit the tax benefits tied to IRAs. For example, if you invest in a property through your self-directed traditional IRA, you’ll enjoy the same tax deferral benefits offered in a Traditional IRA. That means income from selling a property and rents will not incur you capital gains tax. You can take advantage of this feature. Investors usually move down the tax income bracket when they retire. You can buy a property using your Self-directed IRAs and groom it for flipping. When you cash out your income from house flipping, your taxes will decrease significantly.
For self-directed Roth IRAs, time and value of goods are your allies. You will have to pay taxes upfront when investing in real estate through a self-directed Roth IRA but not anymore in the future. If you can buy a $100,000 taxed property that you can sell for $250,000 without taxes in the future, wouldn’t you consider it a good investment?
2. Real Estate Investments, To a Degree, are “Inflation-proof”
Have you heard of the phrase, “a hedge against inflation?” This phrase is often associated with real estate. Inflation is the increase in prices because of the decrease in money’s value. When this happens, many goods might come with ridiculously high prices. Real estate properties, like houses and lands, are semi-invulnerable to inflation. This is because they are primary needs of people. Even with the effects of inflation on the economy, residential and commercial real estate won’t lose demand.
3. You’re in Control
Unlike with stock investments where your money’s future is reliant on companies’ performances, in real estate investing, you are in control of your assets. Will you gain income or not? Will you fail or increase your retirement funds? The answer lies in your hands. You will be responsible for your success. That’s a good thing to know. You’ll be more careful of your decisions along the road.
A Few Notes…
As with any investments, there are risks when investing your IRA savings in real estate. These kinds of investments need you to convert your IRA into a self-directed account. Although custodians keep you apprised of your assets, their responsibilities are often limited. They usually do not assess the legitimacy of assets you might want to invest in. You will have to conduct in-depth research on your own of what types of real estate investment you want to pursue.
Furthermore, there are special rules set for self-directed IRAs real estate investment. For example, assets in self-directed IRAs investments are titled to your IRA and not yours. All expenses for the maintenance of real estate properties have to be money inside your IRA. So, it is better to venture into IRA real estate investing if you have ample savings in your account already. Knowing how to start investing in real estate now will help you increase your retirement fund.
To increase your technical knowledge on how to start investing in real estate, watch this video below:
Investing in real estate may be a strong addition to your investment portfolio. With careful planning and adherence to the rules set by the IRS, you can capitalize on its mechanics.
Do you agree with our list? Let us know why or why not in the comments section below!
Editor’s Note: This post was originally published in September 2017 and has been updated for quality and relevancy.