REAL ESTATE IRA’S

Investing in a self-directed real estate IRA offers multiple ways to grow your account quickly. A real estate investment offers the potential to grow your retirement account in two ways at the same time. If you purchase rental property (be it a home, condo, or mobile home), your account will accumulate rental income throughout the time that you own it. When you sell the property down the line, presumably your account will also realize appreciation on the sale of the asset. So not only are you growing your account through the accumulation of rental income, you are holding an appreciating asset that will return additional gains upon the sale of the property.

For example, say a home is selling for $200,000; an IRA can purchase that home for $200,000, make $10,000 worth of improvements, and then make the home available for rent. If the home rents for $2,500 per month, the IRA will receive gross income of $30,000 a year. Even after paying property taxes, insurance, and minor repairs throughout the year, your IRA could net a return of $22,000 or more per year. On an investment of $210,000, that means your IRA is returning 10% each year.
Then, if you are able to sell the house for $300,000 in five to seven years, not only did the IRA earn 10% each of those years, the IRA appreciates in value from the initial investment upon the sale of the home.

A self-directed IRA can invest in tangible assets. One prevailing theme we have heard about lately from clients who are moving into the real estate realm is the fact that real estate is a tangible asset. Unlike stock in a publicly traded company, the real estate won't simply vanish due to mismanagement. In a constantly expanding world, real estate will always be a special commodity, as it is a finite resource. Alternatively, with some securities, if a company goes bankrupt and out of business, you can be left holding worthless paper.
Lending money in the form of a mortgage out of your IRA also holds some of the similar benefits of real estate. If the loan is properly collateralized, even if the borrower ceases to payback the note, the IRA can foreclose on the property and own that tangible asset. The IRA then could treat the property as a rental unit, and realize the benefits outlined above.

Many IRA clients also finance short-term, interest-only mortgages from their IRAs. In many cases, the IRAs can charge 8%-10% interest to the borrowers. Considering that bank CDs and money market accounts are paying about half of that percentage, investing in mortgages could certainly reap better returns for the IRA owners.

It is always a good idea to diversify your portfolio, especially across different types of assets. Even if an individual is not completely comfortable moving all of his or her retirement funds out of the conventional securities markets, diversification within an individual's portfolio should not be limited to merely different types of securities. Holding different types of assets within a retirement plan helps guard against the kind of losses that many have experienced over the last several years, and could also certainly help the investor tap into new ways to grow a retirement account.

Not all real estate or real estate related investments (such as mortgages, private placements, options, etc.) will perform as well or better than some investments in the securities arena. The important thing for investors looking to recover some of the losses suffered recently is to determine what investment strategies will enable them to most quickly recover their losses and also offer long-term stability and growth. When addressing the short-term and long-term growth, a prudent investor should assess all their options, and these options should include real estate and other real estate related assets.

The above Self-Directed Real Estate IRA information is only a hypothetical example. Any investor should perform their own due diligence to see if this type of investment is right for them.
For more information on how you can invest in Self-Directed IRA’S, please contact Advanta IRA Services LLC. They can be reached at 800-425-0653, or info@advantaira.com