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Funding Your Real Estate Business with a Self-Directed IRA

By Dr. Teresa R. Martin, Esq., REIA NYC

Real estate investing is becoming an increasingly popular option for investors trying to save up for retirement. Not only does investing in real estate offer attractive potential returns, but it adds some real diversification and stability to investor portfolios. In fact, it's arguably one of the best “non-traditional” hedges around against asset volatility.

The growing interest in real estate investing can in part be attributed to the recent emergence of self-directed IRAs, which allow investors to directly invest in properties, mortgages notes, and many other non-traditional assets.

Why Use a Self-Directed IRA?

With a self-directed IRA, investors have the ability to directly invest in physical property and other real estate-related assets while enjoying the tax-deferment benefits of a traditional IRA. But unlike a traditional IRA, account owners also have the ability to actively choose and manage their investments instead of relying on the investment decisions made for them by their financial institution.

The range of permitted real estate investments under a Self-Directed IRA is quite extensive and gives investors a lot of flexibility. You can invest in a number of real estate investments, both residential and commercial, including, rental properties, real estate notes, farmland, and even mobile homes.

By law, self-directed IRAs must be held with a qualified trustee or custodian that takes care of all the administrative services, such as maintaining records of account activity, filing IRS reports, and keeping the account holder both up-to-date and in compliance with all the relevant rules and regulations. So, you can rest assured that these areas are being professionally managed. One thing you do need to note, however, is that not all custodians work with all asset classes. So, you have to check with the custodian before opening an account with them.

Another great feature that you can get with a Self-Directed IRA, is something called “checkbook control,” which allows account owners to make purchases by writing checks on behalf of the IRA. The possibilities and convenience of this feature almost goes without saying. Management tasks, such as collecting and depositing rent checks, paying for property repairs, and paying relevant bills, all of which by law need to go through your IRA, is thus much easier. It also means that you have the power to make time-sensitive purchases, such as for a foreclosed property, right from your IRA account.

In short, Self-Directed IRAs, by their nature, give investors more control and flexibility when it comes to their retirement planning. When these accounts are combined with responsible real estate investing, the ability to generate real wealth and cash flow creates an awesome opportunity that can keep investors happy well into their golden years.