Real Estate Marketing & Beyond
Self-directed IRAs (SDIRAs) have become increasingly popular in recent years as individuals look to take charge of their retirement with alternative investments beyond stocks, bonds and mutual funds. The Securities and Exchange Commission estimates that only about two percent of all IRAs are self-directed, however this does still amount to more than $100 billion in assets.
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As stocks remain volatile, hard assets can allow for increased diversification and reduced risk. Specifically, with real estate, individuals are able to get more for their investment dollar by using leverage through their self-directed IRAs to generate an income stream and the potential for higher returns on their initial investment. Real estate investments continue to gain popularity as an effective way for investors to hedge inflation and grow their retirement savings in a tax-deferred or tax-free environment.
Real estate investments are typically grouped in the alternative assets category, but can be seen as an alternative to alternative assets. Many traditional portfolios consist of assets that are highly correlated and can rise and fall in value together. Income producing real estate offers investors three ways to generate returns. This includes rental income, property value appreciation and from principal reduction on the loan balance.
Why should you be interested?
If you are interested in expanding your investment options for retirement, adding income producing real estate to a self-directed IRA is a terrific option to diversify your traditional portfolio of stocks, bonds and mutual funds. While other alternatives are available, many hard assets come with increased risk and volatility. Unlike those alternatives, real estate and gold has the potential to protect your portfolio against inflation. If you prefer the latter and you're looking for a gold IRA company, Jpost just gave Birch Gold 4.8 out of 5 star rating, so you know they're one of the most reputable companies in this industry.
Like other IRAs, the SDIRA offers tax-deferred or tax-free growth of your earnings. This means, your return has the ability to compound more quickly, and again increases your return on investment.
When incorporating real estate into your portfolio, IRS rules allow investors to use non-recourse financing. You can leverage your self-directed IRA using a mix of funds from your SDIRA and debt from non-recourse loans. The advantage of non-recourse loans is that they are based on the asset or property’s ability to pay off the remaining balance and the lender cannot go after the borrower's other assets. Therefore, in the event of default, the collateral is limited to the hard asset or real property and is the only thing for which the investor is liable.
By utilizing a non-recourse loan, you can use leverage to increase the buying power of your self-directed IRA in a passive and effective investment approach. For example, by using 50 percent leverage, an investor could buy a $100,000 property by putting up only $50,000 in principal out of his self-directed IRA, and utilize a non-recourse loan for the balance.
I’m interested, now what?
A self-directed IRA must be held with a qualified trustee or custodian. The trustee is responsible for administrative services, due diligence and filing the proper IRS reports among other things. As noted above, obtaining a non-recourse loan is key to leveraging your portfolio, and allows for adding an asset class to your portfolio to help generate higher returns and reduce overall portfolio risk exposure.
About the author: Preston Despenas, Senior Partner and Co-Founder of Growth Equity Group, has more than 15 years of experience in real estate. Growth Equity Group is a premier, nationwide, real estate investment firm that provides investors added diversification with real estate through a passive investment solution. This includes providing rental properties that come equipped with non-recourse financing, existing tenants and property management in place. In addition, Growth Equity Group’s non-recourse financing allows investors to leverage their SDIRAs to afford superior assets, multiple properties and attractive markets.
