A lot of real estate investors tell me they are hesitant to sign up for the self-directed IRA, also known as a SDIRA or solo IRA. They’re usually not sure they have the investment chops to see decent returns.
Here's why I disagree: Self-directed IRAs offer a great variety of investment choices. Traditional IRAs are quite limited by comparison, and one of the most lucrative investments right now is real estate.
The value of real estate has steadily increased since the housing collapse of 2008—a collapse that had little to do with the real estate itself. It had more to do with the quality of mortgages that were being offered to homeowners.
Real estate investing through your self-directed IRA can be a sure thing when done properly.
One of the reasons that so many investors lost so much money was because they invested in the debt associated with mortgages. When millions of homes were foreclosed on all over the country, much of the anticipated returns evaporated into the thin air.
You don't want to leave your SDIRA money to chance. One surefire way to get a return on your investment is to rely on distressed properties.
In case the terminology is new to you, a distressed property is one which, for whatever reason, is run-down to the point of being uninhabitable. It may fail housing inspections or a housing authority may deem it unsafe for renters. In that event, the property is still valuable, but the original owners may be unwilling to put more money into the property. An investor then buys the property and fixes it up. This entails both bringing it up to code and making it desirable to tenants for the purpose of inhabiting.
The capital that’s invested there then needs to be replenished. That’s where passive investors come in.
With a traditional IRA, holders are left to choose from a set of handpicked mutual funds. A self-directed IRA offers a much larger set of options, and one of those options is real estate. For the aforementioned reasons, real estate offers investors an excellent opportunity for returns. An investment in an already performing asset offers the holder of an IRA excellent security.
For investors that may be leery about taking on the responsibility of a self-directed IRA, opportunities to become a passive investor should not be overlooked. A qualified professional can help you spot and exploit these.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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