Supercharge Your Retirement Portfolio with Real Estate Investments

Supercharge Your Retirement Portfolio with Real Estate Investments

“Real estate is an imperishable asset, ever increasing in value. It is the most solid security that human ingenuity had devised. It is the basis of all security and about the only indestructible security.” ~ Russell Sage

With the U.S. economy in its eighth year after the last recession, real estate industry is back on its track. According to a recent Trulia publication, 75% of the U.S. adults consider homeownership an important milestone in achieving their personal American dream. At TAG SLC, we help our clients find cash-flowing investment properties, and assist them in maximizing their returns over time. With an interest in investment properties, we keep a close eye on the latest real estate investment trends to help guide our clients to the best opportunities and properties.

Our research has revealed some interesting facts concerning the U.S. Rental Housing industry.

  • As mentioned in a report from the Harvard Joint Center for Housing Studies, renter households have grown at an average annual rate of 770,000 since 2004, making 2004-2014 the highest growth period for renters since the latter half of 1980s. At the same time, home ownership is close to its 20-year low levels, depleting the growth achieved over the past two decades.
  • According to the latest records of the National Multifamily Housing Council, as many as 37% of the U.S. households were living in a rental establishment, as of September 2015, with the trend being highest among adults less than 30 years of age.
  • A recent research report from Zillow unveiled that America’s renters spent $535 billion in rent during 2015, approximately 4% higher than 2014, with single-family homes and multifamily apartments accounting for $245 billion and $239 billion, respectively.

Considering these facts, it is safe to deduce that the American rental industry is growing at a tremendous rate, and this might be the perfect time to start investing in rental properties.

Grow Your Retirement Fund with Real Estate Investing

The expert section of the real estate investment community is known to make the best out of such circumstances, but with the growing demand of rental properties, even novice investors are likely to find some luck in the property rental landscape.

If you are a real estate enthusiast, planning to tap this opportunity, using your retirement funds for real estate investing could help you purchase your first investment property. The IRS allows investing in real estate through qualified retirement plans, including Solo 401k and self-directed IRAs.

How to Buy Real Estate with Self-Directed IRAs?

  • Find self-directed custodian: Start with finding a custodian that allows investing in real estate through a self-directed IRA. Keep in mind that you may find self-directed IRA plans from big financial institutions, but they often limit plan investments to the traditional investment vehicles.
  • Rollover funds from existing IRAs:The IRS allows you to rollover funds from 401k, 403b, 457, thrift saving plans, Keogh plans, traditional IRA, SEP IRA, defined benefit plans, and SEP IRA. The only exception is a Roth IRA account, whose funds cannot be rolled over to a Solo 401k retirement plan. If it is possible, try setting up a Roth Solo 401k account, which might be costlier at first, but the tax-free withdrawals are worth the initial cost.
  • Select a property: This step is quite similar to a regular real estate transaction; however, make sure to choose a property that offers positive cash flow, and is likely to appreciate with time.
  • Choose a financing method:While choosing a financing method for the purchase, be aware that the IRS allows only non-recourse financing for the sale. If you don’t have sufficient funds for the purchase, apply for a non-recourse loan. Under a non-recourse loan, the property under consideration serves as the collateral, limiting the overall credit risk exposure of the plan owner. Most of the sellers agree for seller financing, with an average 10% to 20% down payment and competitive interest rates.
  • Self-direct IRA remains the property owner: It is important to understand that your retirement plan will be the legal owner of the property, and you can sign the documents on its behalf, being the plan owner/participant. The IRS requires all the fees and expenses to be covered by the IRA account only.

Once you have your first investment property, practice diligence in choosing the tenants, ensuring tenant screening, tenancy agreement, and insurance of the property. The best practice is to hire a professional for these legal necessities. Since the self-directed plan owns the property, the entire rental income must find its way back to the plan itself, and every single maintenance or repair expense should come out of the plan only.

When it comes to a favorable investing opportunity, keep in mind that

“Three things that never come back: the spent arrow, the spoken word, the lost opportunity.” ~ William George Plunkett

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