Self Directed IRA Real Estate Trends

Real estate has and continues to be a key holding in a large percentage of self directed IRAs. We saw the activity level high in pre-2008 and now, we see that level coming back, but for different reasons. Below we will look at a couple of key metrics to give you an idea as to what is happening with investment and rental properties.

Apartment Absorption Rates

One of the key trends to watch and follow Apartment Absorption vs. Home ownership. The trend has been and is away from home ownership to apartment living. The following chart from Marcus & Millichap clearly shows this trend.

What we see is that there is a strong trend away from home ownership and into the apartment life. The importance of this trend is that as a current or potential real estate investor with your self directed IRA, the need for rental property is increasing. The psychology of people is shifting from home ownership to being a renter. The financial and economic drivers are pushing people to become renters. The bottom line is holding real estate in your self directed IRA could be profitable and wise.

Vacancy Rates

Vacancy rates across the country were at 5.2% at the end of 2011. That is a 40 basis point (0.40% – 5.6% to 5.2%) decline. That is very significant. Below is another graphic from Marcus & Millichap. Without diving into specifics, what you see are steep declines in vacancy rates across most of the major US Cities. This is just further support for increasing rental demands.

So, what does this tell you about holding rental or investment real estate in your self directed IRA? Our analysis says that the demand for rental property has been increasing and will continue to increase as more foreclosures are disposed. This will be compounded by the fact that the economy is and will continue to grow very slow which puts pressures on wages. This motivates and maintains renters.

Given the predicted slow economy, potential global recession, your portfolio needs to have a good compliment of tangible assets such as real estate and precious metals. This is why we continue to believe that now is still a good time to hold real estate in your self directed IRA.

The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.

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