Have you thought about growing your Individual Retirement Account (IRA) by buying real estate with the tax-free funds? It may sound too good to be true; IRA holders using their pre-retirement funds for buying real estate as an investment inside their retirement account — without incurring penalties or taxes. Depending on your account structure, you may even be able to buy investment homes using a checkbook that is tied to your IRA funds.
For many, buying real estate in Fort Lauderdale as an investment combines the security of owning a physical asset with the relatively predictable income flow a rental property produces. Stan Humphries, Chief Economist at Zillow, predicts in 2014 home prices are expected to rise 3%. Put this all together and it’s clear why some retirement-minded people think that buying real estate in an IRA is an attractive proposition.
If you mistakenly thought your IRA must be invested in bank CDs, the stock market, or mutual funds, you are not alone. Few investors know that since 1974, IRA and 401(k) account holders have had the option to control the ways in which their retirement monies are invested, including real estate. Since the investment is made on behalf of the retirement account, the investment property acquisition can be made without triggering a taxable event.
Of course, there are some restrictions with this type of investment. For example, the property can only be used as an investment, with all income going directly back into your IRA. You may not occupy the home either as a primary or secondary residence. You can manage the property, perform maintenance and supervise the renting — or hire a professional, which can be paid for out of the IRA.
Buying real estate in Fort Lauderdale in a self-directed IRA isn’t always the perfect vehicle to hold all of your real estate investments. The limitations on who can rent a property plus the paperwork requirements mean that it may not be a viable option in some situations. But when used appropriately, it provides many forward-thinking investors an attractive tax-free retirement investment. Be sure to contact your tax and/or financial advisor for more information. For help finding investment properties, contact us!