Flexibility is one of the main reasons savers and investors use self-directed IRAs for real estate transactions. A property can be acquired quickly, with the required fees and costs being directly paid for from the IRA, and in turn, any profits will funnel straight back into the self-directed IRA account.
The inconsistent performance of the stock market in recent years, and the ever-growing threat of a Federal rate hike has made commercial real estate a prime target for investors. This shift in investment focus has helped fuel the commercial real estate market. That’s because investors who use their IRAs to purchase commercial properties that generate excellent cash flow and appreciation can gain a number of awesome tax benefits. For instance, in the case of a Roth IRA, which is funded with after-tax money, investments are not taxed while growing, and are tax-free upon distribution. Roth IRAs also have no minimum distribution, so savers can decide when and how much to take as distributions. Traditional IRAs are funded with pre-tax money and are taxed at the time of distribution, which is the main difference between the two plans.
Real Estate Overseas
The most common investments made with a self-directed IRA are in real estate, but only a small percentage is invested in real estate overseas. Throughout most of the world, it’s not really possible for a foreign buyer to just borrow money from a local bank and use that money to buy real estate. This is where your self-directed IRA comes into play.
Using the property as a rental property, think how Airbnb does it, where a property is rented out, maybe by someone new almost every week (if not every night), makes it easy to remotely operate from anywhere.
You can purchase real estate, but just as it is with property you own in the US, once you move in, or make use of the property yourself, the total value becomes taxable as a distribution under the terms of your retirement account, and your entire IRA account could get hit with repercussions from the IRS.
Who knew that you could invest in a farm without owning farmland? Well you can with a self-directed IRA! There are a few more options like REITs, or mutual funds, or ETFs, but today, we’re just going to talk about self-directed IRAs.
Farmland can help your IRA grow in a few ways as an agricultural investment. A farm that produces crops ranging from fruits and vegetables to cotton and other raw materials for manufacturing tend to be the most profitable because these crops, of course, produce income when they are sold (and most regrow annually). In addition, the value of the land may increase, resulting in a capital gain. Before your IRA can buy anything with an IRA, you have to fund it. As of 2015, you can contribute up to $5,500 a year to an IRA, or a $6,500 catch-up limit if you are 50 and older. Keep in mind that you can also rollover money from another retirement plan to buy a farm, and another funding option is to buy partial ownership of the property, and have other investors.