Using a Self-Directed IRA to Invest in Real Estate

Investing in real estate with any amount of money starting is not only possible, it is one of the best ways to build sustainable wealth over time. Many of the world’s greatest fortunes were built this way, and the financial markets now support many kinds of relatively safe and easily understood vehicles that provide investors with a variety of options.

Real Estate Investment Trusts

This kind of trust provides investors with the benefits of stable long-term real estate investment combined with the benefits of a mutual fund. Shares are relatively liquid, and the company that qualifies as a REIT or Real Estate Investment Trust manages income producing properties for the group that helps finance them.

REITs trade on exchanges in much the same way mutual funds and stocks do. They are often sought out for attractive tax benefits and are popular with investors interested in low risk, stable returns.

Partnerships

While these kinds of investments aren’t as transparent as REITs or more traditional vehicles like mutual funds or stocks, a partnership can be extraordinarily lucrative if the right people are in place. Very often, these groups are made of up a combination of property “finders” and others who bring in financing and set up the deals.

With enough experience, these groups can often take small amounts of capital from several investors and apply the same dynamics to every investment, creating swift returns and then repeating the process from property to property.

Mutual Funds

While it might seem that the traditional markets aren’t a great fit for real estate-minded investors, they are a great fit for a self-directed IRA, mainly because of the potential for reinvesting dividends and interest payments. The great thing about a mutual fund that invests in residential home builders, for example, is that the fund gets its money out early and doesn’t have to wait for the long and sometimes slow road to a sale.

It should be noted that some mutual funds take advantage of real estate investment trusts by either indexing them or by creating portfolios of some of the best performing REITs on the market. Because the market treats them like stocks with higher than average dividends, they have the potential to become popular with fund managers.

Renovation

There is a reason so many television shows have become popular by featuring do-it-yourself individuals and couples who decide to take a distressed or abandoned property and fix it up until it is worth enough to sell at a profit. Every amateur mechanic has their dream car in mind. It stands to reason every amateur real estate investor believes they can find the dream home.

As a vehicle for retirement investment, this can be a lucrative journey, provided funds are secured by insurance and preferably if there is some easy and inexpensive access to the labor required to take a property from broken-down to a successful sale.

Real estate can be tricky for the inexperienced, but there are few areas of the market with a longer and more successful record of success for both IRA owners and the general investment community.

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