Too often, people mistakenly believe that their retirement accounts have to be invested in traditional, finance-related investments such as stocks, mutual funds, or exchange-traded funds. There are many more retirement options than these, however. Many investors never realize that the IRS permits retirement accounts such as an IRAs or 401(k) plans to invest in real estate and other alternative types of investments.
Adding real estate to your investment portfolio is a great way to diversify holdings and protect against the volatility of the stock market. That makes real estate a smart choice for retirement investing. Currently, real estate prices in many areas of the country are depressed, and there are plenty of good deals to be had. If you have enough time before retirement to wait out the housing slump, an investment today could easily grow into a nice profit in the future.
By far the two most common vehicles for purchasing real estate with retirement funds are the self-directed IRA and the employer-sponsored 401(k) plan. However, most employer 401(k) plans do not offer real estate as a plan investment option and, for this reason, the self-directed IRA has become the most popular way to purchase real estate with retirement funds. Establishing a self-directed IRA is relatively affordable, and it can be done in just a few days.
There are rules, however. Any real estate you buy must be a business property, not a personal residence, second home, or occasional rental. Also, you can’t use your IRA to buy a property you already own. It can only be a new purchase put directly into the IRA.
It is also possible to buy and sell real estate in a self-directed IRA if you are in the flipping business, but there are some limits on how many transactions you can make per year. The profits on any transaction, however, would be tax-deferred or tax-free and allow your IRA to continue to grow with those tax advantages.
Investors handy with tools can also try growing their retirement funds more quickly by buying a fixer-upper property, renovating it, and then selling it quickly, putting the profits back into an IRA.
Interested in learning more? RICH Club educates our membership on all manner of real estate investing secrets. Retirement funds are only one way to invest. To discover more, join today or attend one of our upcoming events in Houston to find out how RICH Club can make you a smarter, better real estate investor.