Why choose a self directed IRA/401k?
An individual retirement account (IRA) is a savings account with tax advantages that individuals may open to save and invest in long term growth or on a tax-differed basis. This self-directed individual retirement account allows you access your IRA and private equity in order to participate and have complete control wether you are looking to invest, buy, or sell real-estate assets at your fingertips. Allocation from a 401(k) account can also be derived and transferrable to a self-directed account.
IRA holds strict guidelines that you must follow:
- Real estate owned in your IRA account is strictly an asset owned by your IRA and must be strictly used for investment purposes. Meaning, you will not be able to reside in the property or use it for any other purpose than what it is intended for.
- You will be unable to purchase or sell property from yourself or a family member using your self-directed IRA.
- Any expenses acquired must be paid through your IRA account only. Examples of expenses incurred may be in the form of maintenance repairs, improvements, insurance, property taxes, etc.
- The use of furniture you currently own in an IRA-owned rental property in prohibited.
- Any profits or income earned must be paid to and returned to your self-directed IRA account.
Using your IRA can account contains many beneficial uses in the following ways:
- Tax-Free or Tax-Deferred Earning. When owning properties through your IRA account you will be able to reinvest all of your rental income without having to be taxed and any capital gains acquired. You will also be protected from being subjected to taxation.
- Yielding a high return on your Investment. Real Estate Investments has a susbainal amount of benefits such as rate of return that typically ranges from 10-15% or even more. The Real Estate market has remained steady and consistent in the past decade. Knowledge and educating yourself in the understanding on how the market works and how to reduce the exposure to risk will be highly beneficial. An IRA can be strategized and excersized in allowing you earn a higher return on your investment compared to your traditional bonds, stocks, and securities.
- Diversification. Investing in real estate with an IRA enables you to have no limitations on the purchase of stocks, bonds, or mutual funds, exchange-traded funds (ETFs) and index funds. The purchase of real estate assets will also be open for purchase internationally and assets ranging from single and multi family homes, commercial and rental properties, mortgage notes, raw land, mobile homes, and more, will be obtainable.
- Maintaining financial security for you and your family. Using an IRA account will provide you and your family with fanatical stability and also allows you to transfer your savings to your heirs as inheritance.
The Potential Drawbacks To Consider:
There are a number of drawbacks to consider when investing with an IRA:
- Third-Party Involved. Approval from a IRA manager will be needed even though ultimately the individual has the complete control.
- Conducting prohibited transactions. Conducting prohibited transactions, whether accidental or not may result in the IRS issuing a tax bill and charging penalties as they could consider the the entire account being distributed to you personally.
- Risks in the real estate market. Keep in mind that The Real Estate market does generally hold a higher ROI but it can still fluctuate leaving an element of uncertainty. Real estate properties can also be more time consuming and challenging to sell.
- Real Estate requires high Capital. Investing in real estate requires a lot of money and you will be required to fund for a down payment, repairs, maintenance, mortgage, taxes, homeowners insurance, and any other associated costs when they arise.
What To Keep In Mind
Investing in real estate using an IRA is usually used by experienced investors that understand the high risks in Real Estate, as well as other other common investments.
However, investing with an iRA account can create substantial growth for those who have the knowledge on how to properly utilize it.
Only you can control your future.Dr. Suess
Benefits Of Investing In A Real Estate Syndication With IRA
Diversification is an important aspect of mitigating risk. If someone is heavily invested in equities and are worried about a volatile market then they may want to consider real estate as part of their portfolio.
Deferred Taxes as with any traditional IRA investment, the profit generated has the potential to grow tax-deferred until you take a withdrawal. If it is a Roth IRA, profits could accumulate entirely tax-free, meaning you wouldn’t even have to pay taxes when you withdrawal funds. On top of that when you invest in a real estate syndication you receive DEPRECIATION which is one of the biggest reasons people invest in properties.
Have More Time For What You Love because it’s not fun dealing with the day-to-day of managing real estate. When investing as a (LP) limited partner, you get to spend more time doing what you love and letting the money work for you.
First it is always recommended to consult with your financial advisor and tax professional.