Today’s retirees have more investment choices than previous generations, including the option to buy real estate with IRA accounts, which can provide ongoing retirement income, provide portfolio diversification and improve financial security. To take advantage of this opportunity, the first step is to open a self directed IRA account, which permits investments beyond the typical stocks, bonds and mutual funds. Of course, as with any major investment, it’s essential to follow the rules very carefully when buying real estate with IRA accounts.
Here’s a quick rundown of the basic do’s and don’ts:
- DO make sure the entire cost of the real estate investment is paid for with IRA account funds.
- DO choose a large, well-established custodian with a history of great performance.
- DO use the property as a rental to provide ongoing income and capital growth.
- DON’T personally use the property or personally handle any repairs.
- DON’T pull the money out of your IRA to pay for the purchase.
- DON’T try to handle the paperwork alone - consult with a trusted attorney & realtor.
IRA Real Estate Rules: What Retirees Need to Know
So, how can a retiree own an income producing property in an IRA, but never personally handle the repairs, maintenance or actually use the property? Simple. By working with an experienced property management service that knows how to handle bookings, will keep guests happy to ensure repeat visits, pays the utilities and promptly takes care of all maintenance concerns for a reasonable fee.
Look for a nicely-priced property that offers low maintenance to begin with – preferably a new construction luxury condo in one of the world’s top vacation destinations – and also has low overhead with reasonable management fees. Doing this will ensure that you get the greatest return on investment, which – if you are taking IRA distributions – means more income to spend. In hotspots like Mexico’s Riviera Maya investors are realizing annual returns of 8-14% and property appreciation is booming with no signs of slowing down.
Other Benefits of Buying Real Estate with an IRA
As mentioned earlier, owning real estate in an IRA also offers other benefits for investors, including tax deferred growth and income, as well as a much-needed hedge against inflation.
“It has been legal for over 30 years to buy real estate with a self directed IRA – and it’s much simpler than you might expect”, wrote International Living. “One of the big benefits of buying real estate with your IRA is tax deferral”.
Finally, buying investment properties in an IRA adds greater diversification for your investment portfolio, which can otherwise suffer from too great of a dependence on stocks, bonds and mutual funds, which are all subject to ongoing stock market volatility. Since real estate is a tangible investment, it has a greater level of long-term security built in automatically.
What would you do with more retirement income to spend? Tell us in the comments!
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