Real estate investments for retirement is becoming more and more popular
As housing markets continue to stabilize IRA investors are taking note of placing real estate into their retirement portfolios. As with everything involving real estate and investments, you have to do your homework. Not only do you need to do your due diligence in buying and selling properties, but you also need to understand your tax and retirement responsibilities when using real estate investing for retirement.
Holding Your Real Estate Portfolio
Legally, anyone can begin buying and selling real estate and plan on using the money for their retirement. However, without proper planning, you can get stuck with large tax bills that eat into your retirement. Even if you are only paying the lower capital gains rate, you could be growing your real estate investments in a tax deferred self-directed IRA. This works much like a traditional IRA, except you are in charge of what your retirement plan invests in. You get all of the same IRA tax benefits. You also have the same responsibilities a professional retirement plan administrator would have with following the IRS rules on IRA investments.
Types of Real Estate Investments
The two most common real estate investing for retirement are buying rental properties that produce income and flipping properties by hopefully buying low and selling high. Each type of real estate investment has a legitimate place. It may take a lot more skill to successfully flip real estate, especially if you are using all of your assets. The amount of risk an investor takes with real estate and investments typically depends on how far away they are from retirement and how diverse their assets are. The farther away from retirement they are, the greater risks they can take because if the investment goes bad, they still have time to recover and rebuild. Also, the more diverse assets an investor has, the easier it is to take a larger risk with just one or two asset classes.
If you are just starting out with real estate investing for retirement it can potentially make sense to begin conservatively. Beginning with a rental property that slowly and steadily increases in value over time can be a better approach to real estate investing over short-term or speculative real estate transactions. The key to real estate investments is to steadily build wealth while maximizing income potential. But, keep in mind that if you try to get rich overnight you are just as likely to lose everything.
Contact Gene Mock, Associate Broker, Premier Team, Keller Williams Realty 703-342-8100 for all your real estate needs!
Gene Mock, “Realtor® of the Year” 2014 by Dulles Area Association of Realtors®