Real estate has a reputation for being a stable, long-term investment. What’s more, it can help you diversify a portfolio that may otherwise be heavily invested in stocks and bonds. However, investing in real estate doesn’t necessarily mean taking out a mortgage. In fact, you may find all the cash you need in an unlikely location: Your IRA.
There are several strategies that will allow you to invest in real estate using your IRA. These range from owning a property outright to buying shares in a company that owns real estate. Here are a few options to get you started:
Self-directed IRAs have the same tax benefits as regular IRAs, but you’ll need a special custodian to set one up. Once it is in place, money from the IRA can be used to purchase property, although there have been cautions that the IRS has rules about who can rent the property and who can be paid for services related to it. For instance, you can’t buy a property and rent it to yourself.
Another way to invest in real estate with a self-directed IRA is to use a real estate syndication. These are groups of investors who pool together money to purchase larger properties. With a syndicate, there is no need to worry about finding tenants or maintaining a property. You simply decide where you want to invest your money.
However, many syndicates are limited to accredited investors. To be considered an accredited investor, a person needs to have earned an annual income of at least $200,000 for individuals and $300,000 for couples during the past two years. Alternatively, those with a net worth of more than $1 million can be considered an accredited investor.
Regardless of which route you take – direct ownership or real estate syndication – it’s best to consult with a financial professional before setting up a self-directed IRA. Although they offer more flexibility than a regular IRA, they require more time and expertise to manage and may also come with more risk.
Invest in REITs
Using a self-directed IRA lets you buy and own specific properties with your retirement account, but it’s not for everyone. For an easier way to invest in real estate with an IRA, buy shares in REITs on the stock market or from private companies like Future RE Capital Investments I. REITs, or real estate investment trusts, are companies that own or finance real estate.
A 1960 law, signed by President Dwight Eisenhower, opened the door for the creation of REITs. They were developed in response to concerns that only large institutions or very wealthy people could invest in commercial buildings.
Future RE Capital Investments I specializes in REITs for residential and commercial properties. REITs give investors exposure to a variety of real estate types, which can help diversify a portfolio and potentially boost gains.
An added benefit of REIT ownership within an IRA is that dividends stay in your retirement fund where they can grow tax-deferred or tax-free, depending on whether you have a traditional or Roth IRA. The average dividend yields for REITs in 2023 have been around 4.09%, according to Multi-House News. While REITs like Future RE Capital Investments I can deliver upwards of 12%.
Buying REIT shares with an IRA is as simple as selecting a fund and deciding how much money to invest. Purchases are made in the same way as if you were buying stocks or mutual funds. Talk to your financial advisor, your custodian or contact the company directly for specific information on how the process works for your IRA.
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