Reasons a Real Estate IRA May Not Suit Every Investor - Silverstone

We do a great deal of pontificating here at Silverstone with much of it swirling around ideas and thoughts on how to maximize retirement investment effectiveness. Just like everyone else, we want to effectively avoid tax and maximize ROI. In doing so, we recognize each investor may not be on the same level playing field. It?s the disparity that may unfortunately disqualify some investors from jumping into real estate investing. But, there are work-around options, even if investors only have small amounts in the self-directed IRA.?That?s where we work to bring in outside financial and investment planning help for retirement investors in their quest.

Many would-be investors certainly like the idea of utilizing a self-directed account to maximize returns, but there are a number of instances where such a set-up actually does not help the individual.

• Down payment requirements are higher. Either you need to buy straight with cash or pay much larger down payments of 30%+. For many retirement accounts that can be a deal breaker.?
• Investors can?t borrow as much. If you?re out seeking some type of non-recourse real estate IRA loan, then you?ll need to understand more is required down for the investment. The IRA alone must be responsible for the investment, not the individual.
• Real estate can include greater risk. Some may not want to stomach the greater risk of holding real estate in a still volatile market which may be propped up by investors. It?s unfortunate because real estate used to be considered one of the ?safe? markets. Now, it would seem, nowhere is safe for investors.
• Lack of capital. If an ?investor? has no savings, including no retirement savings and is looking for a way to get into investing his real estate IRA in multi-family properties, it may sound grand on the surface, but where the rubber meets the road, the most essential element is missing: the capital to fund the deal.
• Prohibited transaction issues. When accounts are liquid and substantially-enough funded then the temptation to self-deal increasing. This in turn increases the chances of taxes and fees hitting that could wipe out any and all previous gains the account has accrued and then some. The temptation is there when liquidity is scarce.

If you?re truly looking to break into the real estate IRA market and may be somewhat deterred by reasons not to enter, then all you need is that one contact, that single deal or that next great business connection for tapping your IRA out to the maximum. In many cases, it could just mean partnering and co-investing in real estate deals. As long as co-investors are not prohibited persons, you can use their capital as leverage instead of traditional financial institutions.

Another piece of advice is to find a niche within the real estate market. Sometimes this means going to the bottom rung for renters. Yes, you can invest in trailer parks with your IRA. Well, if the second real estate bubble ends up bursting the bottom rung may be the place you want to be. Let?s just hope that doesn?t happen.

Source: http://www.silverstone.net/real-estate-ira-not-for-every-investor/

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