THREE TYPES OF POPULAR REAL ESTATE INVESMENTS
There is a plethora of investment options when it comes to opening a self-directed IRA account. The most popular? Real Estate! It makes sense. Smart investors know its best to invest in something you know. Most of us have rented or purchased a home so its only logical that real estate is the most popular investment.
There is a consistent rule when purchasing real estate: rent is due each month! When using a self-directed IRA to invest in real estate that rent is deposited into the IRA account. A depsoit each month means the IRA’s account balance is building a retirement nestegg. That’s everyone’s goal, right?!
Reading and learning as much as possible helps make this a profitable adventure. Here is some information on single family homes, multi-family properties and commerical real estate.
Single Family Homes
Single family homes are the most popular real estate investment! After all, it’s an investment that is familiar to almost everyone.
Buying a single family home is initially less expensive than buying a multi-family or commercial investment property.
It works like this: the property is purchased with funds from the Self-Directed IRA. Repairs, insurance, property taxes and every other expense is paid for by the Self-Directed IRA. There is no out-of-pocket money needed. The self-directed IRA earns money each month from rent and ultimately the sale of the property. Deposits are tax-deferred!
This investment is a wonderful way to have steady income that can build and strengthen a retirement account.
Adding a property management company to this investment can make it easier to handle. This expense is also paid for by the self-directed IRA.
Investing in a single-family home is a skillful way to see if there is an interest in being a full-time investor. Full-time or experienced investors can take advantage of bigger and more profitable investments, like multi-family properties and commercial real estate.
Check out this video from CNBC in which Warrren Buffet talks about investing in single family homes.
Multi-family Properties
There are many advantages to investing in multi-family properties, but you should be an experienced investor before utilizing this type of purchase. Think of it like Monopoly…little green house have been purchased and now it time for a big, red hotel!
This investment may initially cost more than a single family home, but its earning potential is bigger! The deposits alone are more substantial because the the self-directed IRA account is receiving monthly deposits from more than one family or office tenant.
One tenant who refuses to pay or vacates the property does not mean the self-directed IRA stops earning rent each month. It has other tenants who owe money. The more units owned by the self-directed IRA, the less financial impact it will have when the vacancy rate increase.
Another benefit is that all maintenance can be done in one location. Instead of a handyman, pool cleaner, landscaper, etc. visiting multiple single family homes, they can get their job done at one location. Consider just the savings on trips charges alone.
Because of the earning potential of multi-family properties, this type of investment is used more commonly by advanced investors to obtain financial freedom, allowing them to become a full-time investors or property manager.
Commercial Real Estate
Your Self-Directed IRA can invest in commercial real estate as well, from parking lots to commercial buildings.
THE BIGGER THE BETTER, is how you should think when it comes to commercial real estate investments. A large number of units owned means a large number of rent checks that need to be deposited into the self-directed IRA each month.
Commercial leases are generally longer. A commercial real estate tenant likes to create a brand presence so they usually stay for longer duration of time versus other tenants.
Commercial real estate requires a lot of time, patience and research. These deals take longer to close, the renovations take more time, plus the area must be thoroughly researched to help ensure the investment is a good one. When researching a location, talk to previous owners about the vacancy rates. Talk to store front managers and owners and ask if the current tenants happy and are planning to renew their leases. Ask how is business is going, who are a majority of their customers, what are their complaints or compliments about the previous/current management? Get the seller’s cash flow statements for the last couple of years. Taking the time to research the area, the building and the tenants will help decide if the building is the profitable investment for your self-directed IRA.
Many commercial properties are sold without being listed first so it’s best to have a network of professionals to help you.
Check out this article from Entrepenaur magazine comparing different real estate investment
Closing
Real estate is the most popular self-directed investment and is an advantageous way to see if you want to be a full-time investor. Some of the investment mentioned in this article may made need a more advanced account than a self-directed IRA.
At Accuplan, we have many year of experience in dealing with all types of real estate deals all over the US and can help you choose the right account for the desired investment option.
Feel free to contact me or visit our website (www.Accuplan.net) and chat online with one of our knowledgeable IRA Specialist.
Author:
Jaclyn M. Grella
800-454-2649
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