Let’s start off with a quick definition of what an IRA is…
Individual retirement accounts (IRA) are regulated savings accounts intended to serve as a source of income for retirement. They’re managed by the account holder via an approved custodian or administrator, or by a professional investment firm that acts as fiduciary for the account.
The funds in an IRA are typically held by a financial institution (like Fidelity, Vanguard, Charles Schwab, Merrill Edge, etc.), which has the right to invest them in traditional investments such as mutual funds, stocks, and bonds – within their own basket of investment options.
So what’s a Self-Directed IRA (SDIRA)… and how does it different from a regular IRA?
Technically, a self-directed IRA is not any different than any other IRA (or 401k); however, what makes a self-directed IRA unique is the wider range of available investment options.
Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. A self-directed IRA custodian also allows those types of investments, but in addition, the account holder can also invest in a greater range of assets, including things like real estate, private loans, notes, private placements, tax lien certificates, and much more.
Since our main focus is on creating more passive income with good ole’ real estate, let’s dive into…
5 Specific Ways to Invest Your IRA in Real Estate
1. Distressed Properties
I know many experienced investors who buy distressed properties well below their after-repair value, fix them up, and then rent them out for cash flow. Not a bad way to build up your passive income… as long as you have the time, patience, passion, and business savvy to run a rehab business – like a true business.
It’s not for everyone though. Especially if you’re a busy professional, hands-off investor, or someone who simply doesn’t have the time or inclination to learn the ins and outs of a rehab operation.
2. Turnkey Rental Property
Turnkey rentals are typically single-family homes that are fully-renovated, in like-new condition, with qualified tenants already in place, as well as professional, local property management to oversee your investment. It’s “turnkey” and ready to go. You just have to buy it…. and immediately start receiving your passive cash flow.
As most of you know, one of the things our company makes available are ‘turnkey rental properties’ in prime Midwest markets. We’re wrapping up our latest one this week, so I’ll be sending you the details shortly.
Here’s a quick snap I took of it yesterday:M
You’re gonna love the numbers on this one!
3. Private Lending
With this option, you’re basically the bank. You lend out funds to other investors and they pay you interest on that money. Interest rates can vary from as low as 5% to as high as 15%.
There can be some up front legal costs to make sure all of the paper work is in order but once you find a good borrower, this can be a steady and reliable source of passive income.
This is also another investment option that our company makes available to our clients.
Here are some of the main reasons why many investors prefer Private Lending (being the bank) versus owning actual ‘brick and mortar’ real estate (although I personally think you should be doing both!):
#1)Secured Asset – Your loan is backed by real estate.
#2) No Tenants or Toilets – Remember, you’re the bank, not the landlord… so you don’t have to worry about things like fixing a leaky faucet, replacing a water heater, collecting rent, or potentially evicting a tenant.
#3) No Costs – The borrower pays for all costs.
#4) You Choose the term of Your Loan Based on Your Financial Goals – You can do a short term loan (6 months – 2 years), intermediate term (2-5 years), or a longer-term loan (5-30 years) if you like the idea of locking in returns… and not having to worry about finding a new investment all the time.
#5) You Don’t Have to Collect – Funds can be direct-deposited right into your bank account.
#6) Your Earnings Can Be Tax-Deferred or Tax-Free – How? By utilizing a self-directed IRA (or 401k). This is the ultimate super highway to growing your cash flow and wealth as fast as possible!
Anyway, if you like the idea of “being the bank” and earning safe and secure double-digit returns, without the hassles of being a landlord… keep an eye out for our latest Private Lending Opportunity coming out within the next few days.
4. Own Some Commercial Real Estate
Many of our clients like the idea of going big… and having an interest in a multi-million dollar commercial project like an apartment complex or retail shopping center.
My team and I really like the idea as well… which is why we also make available larger projects to our clients, as a group.
In fact, this is probably our main focus and expertise, as our operations partner is one of the top repositioning specialists in the Midwest, and someone who’s acquired over $50 million in commercial real estate.
Anyway, if you also like the idea of going big, receiving true ‘mailbox money’, and owning some commercial real estate that pays a hefty annual ROI – for as little as a $50k investment – then keep your eyes peeled for a couple of amazing deals coming your way soon!
5. Real Estate Investment Trusts (REITs)
A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate.
REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries – through the purchase of stock.
In the same way shareholders benefit by owning stocks in other corporations, the stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy or finance property.
The structure is modeled after mutual funds, so if you’re looking for easy transactions both in an out, REIT’s provide that.
The challenge? The returns aren’t that much better than your average mutual fund as well!
So there you have it, 5 great ways to invest your IRA in real estate… and grow your wealth tax-free or tax deferred.
Different strokes, for different folks.