Is a rental real estate investment the best option for your self-directed IRA? The answer depends on each IRA investor’s unique circumstance. While some rental real estate investors appreciate they can “touch” their investment, others are stressed by the amount of responsibility that comes with being a landlord. Rental real estate investment education begins with understanding some of the finer points of the transaction before jumping in with both feet. Asking yourself some of the following questions can help you to gain a better understanding of whether or not rental real estate investing within a self-directed IRA is right for you.
- What is my investment time horizon? Rental real estate is considered a long-term investment because of necessary up-front closing costs which are amortized over time. Unlike traditional stocks and bonds, rental real estate as an investment comes with maintenance expenses, taxes, and operating costs that can erode short-term returns.
- Does my balance sheet contain enough liquidity after I make my rental real estate investment? While real estate has the potential to increase in value over time and provide a steady income, it also has the potential to decline during poor economic times and is difficult to sell quickly. Proper rental real estate education encourages investors to look beyond the initial property purchase price and take into account post-closing expenses when calculating necessary self-directed IRA account liquidity.
- Do I fully understand the local rental real estate market I intend to purchase from? Local rental real estate values often fluctuate. Rental real estate investment education for IRA investors often depends on local economic indicators of the specific region an intended investment is located.
- Am I prepared to market and manage the daily activities of my rental real estate investment? Ideally an investor must determine how much he or she wants to participate in the day-to-day activities of rental real estate investments. Having a business plan in place can help investors market the property, find or replace tenants, and properly maintain the property.
If you are considering rental real estate investments within your self-directed IRA, there is no right or wrong answer because it depends on your unique situation. Making time for real estate investment education can help you get started as a real estate investor or help you decide that type of investment isn’t suitable for you. It is always prudent to consult with your trusted tax, legal, and financial advisors to discuss all of your investment options before signing on any dotted lines.
For More Information About Self Directed Real Estate Investments
Contact Gene Mock, Associate Broker, Premier Team, Keller Williams Realty 703-342-8100
Realtor® of the Year 2014 by the Dulles Area Association of Realtors®
Real Estate Investment Education for IRA Investors
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