Using Your IRA to Invest in Real Estate

Investing in real estate provides a unique way to diversify your portfolio and hedge against inflation, so incorporating real estate investments into your retirement account might make sense for your financial plans. As you look at your options to build wealth and prepare for retirement, it’s a good idea to look at the different ways you can use your IRA to invest in real estate. Here’s a simple breakdown of the two main ways you can use a self-directed IRA to become a real estate investor.

Purchase a Property

Believe it or not, you can use your IRA to invest in a piece of real estate to round out your portfolio. This investment option does require you to have a fairly high existing balance. You’ll need to acquire a mortgage to purchase the property, so you’ll also want to ensure the real estate market and current interest rates are favorable for your investment. Once you purchase the real estate asset, any rental income you receive goes back into the IRA account. This means you can take advantage of cash flow while holding onto an investment you can potentially sell for a profit in the future. You can purchase virtually any type of property with your IRA, including retail buildings, apartment complexes, or single-family homes. 

There are some requirements for purchasing a property with your IRA you’ll need to meet in order to invest in real estate with your retirement account, such as:

  • You must have a self-directed IRA to purchase real estate
  • The property you buy must not be used by yourself or a family member as a residence
  • All costs of ownership must be covered by the IRA

You’ll also want to remember that taxes can be complicated for this type of investment. While your IRA may enjoy specific types of tax deferment, you can’t claim deductions or any other tax write-offs while the property is inside of the IRA account. Speaking to a financial planner can better help you navigate all the tax implications, along with the rules and regulations you’ll need to follow, as you plan to purchase real estate with your retirement account.

Invest in a REIT

Not everyone can afford to leverage their current IRA balance to take out a mortgage and purchase an entire property on their own. Fortunately, there’s another route to real estate investment that’s easier; REITs. REITS are real estate investment trusts, which pool money from many different investors to purchase a portfolio of real estate assets. Your investment can be as little as $500, which makes the idea of investing in real estate much more attainable. Unlike purchasing a whole property with your retirement account, a REIT lets you share the risk and reward without some of the drawbacks of being a landlord. You won’t have to dig into your IRA to cover the cost of repairs, property maintenance, or management, and you can rely on the team of professionals managing the REIT to take care of all the hard work and research. DiversyFund’s experts perform intense research to determine which assets will be added to each REIT and how to help maximize profitability. 

So what are some of the other benefits of holding REITs in your retirement account? Retirement planning with a REIT in your IRA provides some additional potential tax benefits, particularly if you have a Roth IRA. REITs can also be more stable than individual real estate assets, as your financial performance doesn’t hinge on a single piece of property. You can also choose the level of investment that meets your individual needs without the burden of a mortgage falling on your shoulders.

What Real Estate Investing with IRAs Means for You

A diverse portfolio is key for retirement planning, and adding real estate to your IRA can help balance out the risk you take on with stocks, bonds, and other more traditional investments. Whether you opt to purchase a single property or invest in an IRA, your investment will not be as liquid as stocks and bonds, providing an alternative that supports long-term financial growth. DiversyFund provides people of all investment levels and backgrounds an opportunity to invest in real estate as an alternative private market asset.

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