Buying real estate within an IRA account can help you insure your retirement and protect your profits from excessive taxes. So, more and more people are using their IRA for real estate investment, but there are pitfalls. Here's what to look out for.
You probably know that you have a trustee that is responsible for the maintenance of your account. He or she is probably responsible for managing a number of similar accounts, as well as performing other functions within the firm or brokerage.
Only a few trustees are experts at buying real estate within an IRA account. In fact, only a few brokers offer their clients that option. Most stick with traditional investments like stocks and bonds. And, there is nothing wrong with those types of investments. It's just that in an ever changing economy, diversification is the key to maximum growth.
In other words, if you want to use your IRA for real estate investment, you still want other assets. Relying on real estate alone is no wiser than relying on the stock market alone. The ideal IRA custodian is one that offers their clients a wide variety of investment options. A company like Equity Trust is a good choice.
Now, assuming that you have a self-directed IRA with the right custodian, you can begin buying real estate within an IRA account, if you have the time and the knowledge. You don't want to buy just any property, so you need to know which ones to look for.
If you are already an experienced real estate investor, then you know which deals have the potential to be profitable. The reason you want to use your IRA for real estate investment is to increase your profits. The costs related to the deal come out of the account and the profits go back into the account.
Those profits are either tax-free or tax deferred, depending on whether you have a Roth or traditional IRA. All in all, you can earn as much as 50% more per deal by using your IRA for real estate investment, rather than using other funds.
Now, if you have little or no experience, buying real estate within an IRA account can cause you a lot of stress. It's just as easy to lose money as it is to make money. You would be wise to get some help. Your account custodian cannot advise you. They simply do as you direct them.
Because using the IRA for real estate investment is growing in popularity, a few knowledgeable investors are offering their services to the inexperienced investor. If you fall into that category, then they can help you avoid the pitfalls and the unneeded stress by helping you locate the right property. At the very least, they will save you some time.
If you are still working full time and you have a family, time is a very valuable commodity. Do you really want to spend your weekends searching through the classifieds, driving around neighborhoods and looking for good deals?
Probably, not, but buying real estate within an IRA account may still be a good idea for you. You can use real estate to increase the value of your IRA and if you make the right deals you can secure your future faster than you could with more traditional investment types. You just need someone to help you find those deals.