Not many people know that you can own real estate in your retirement account, even though it’s been possible since 1974 when IRAs and 401(k)s were first created. Wall Street seized the custodian role of these account early in their lifecycle and has had control—and the blind faith of most Americans—ever since. But that faith is eroding and many are moving into real estate to save and protect their retirement savings.
Why real estate? Real estate is a proven method for building wealth and has made more individuals wealthy than any other asset class in the history of mankind. Long-term real estate ownership has proven to be a strong vehicle yielding high appreciation, far superior to other retirement asset choices. Real estate is also an excellent investment to hold within a retirement account and the antidote to the mutual fund blues. Here are my top five reasons why real estate is ideal for your retirement account.
1. Tax-Free Cash Flow: Real estate investments provide monthly cash flow to help grow your retirement in addition to any appreciation. Since the asset is held within a tax-free environment, there are no taxes to pay (in most cases) until you withdraw money from your IRA. And if you own the asset in a Roth IRA, the monthly cash flow and capital gains can be withdrawn at retirement completely TAX FREE!
2. Create Leverage: Your IRA can borrow money and create leverage allowing you to expand your holdings. You could also borrow money from another IRA holder since the law also allows IRAs to lend money.
3. Control: Want to improve the value of your investment? Add a new roof. Put in carpet. Update the kitchen. All of these improvements can increase monthly cash flow and ultimately improve the value of your asset. These costs have to be paid out of your IRA, but name another investment that you can improve with your own free will.
4. Less Volatility: All investments are cyclical and have their ups and downs, but real estate is more predictable and less volatile than the stock market. Ever see the value of real estate tracked by week, day, or minute? You haven’t because it just doesn’t move that fast. Timing the peaks and valleys of real estate is an easier task than timing other asset classes, especially market-based investments.
5. Diversification: Real estate offers a great way to diversify your portfolio. How many people had their entire retirement portfolio in the stock market? Nearly 80 percent. Use real estate to balance your portfolio, along with other asset classes, so retirement doesn’t get postponed due to a bear market.
The first step toward owning real estate in your retirement account is to set up a self-directed IRA or 401(k). Once the new account is established, funds are transferred from the old IRA to the new IRA, You can then start looking for real estate opportunities. Freedom Growth specializes in all aspects of owning real estate in a retirement account and guides each client through the process. Check out our Web site to learn more.