Industry News – The Power Of Investment Real Estate In Your IRA

Industry News

Have you always wanted to own real estate as an investment but didn’t know how you would be able to get the money to do it? 

Have you ever watched your retirement Roth IRA, IRA, or 401(k) account go up and down like a roller coaster at Cedar Point and thought, I wish there was some way I could earn a high rate of return but also be safer and give me more control? 

Owning real estate in a self-directed IRA may be the answer. 

Why Real Estate?

Real estate has a ton of advantages over traditional options in your IRA.

For one, real estate is less volatile and more predictable than stocks.  While a stock’s value may go up and down daily, real estate is mostly stable and appreciated on average at about 3.5% per year from 1995 to 2017 according to Columbus Realtors (this includes the time of the “Great Recession”).  

At the same time, rents while determined by the market, are usually locked in for at least a year with a lease and according to the 1% rule should be around 1% of the value of the property on a monthly basis.  This means that the cash on cash return would be around 12%. 

Adding up these two forms of return on investment gives you an annual return of around 15.5%, which is way above what most personal financial advisors will tell you that you can expect as a consistent return from stocks. 

Of course, the fact that real estate is a physical asset that has intrinsic value in my view is an advantage too.  I like the fact that I can drive by my investments and see what is going on with them.  I also like that I control how it’s upkept and that I can affect the value of the property by making improvements.  

Now the risks…there are risks to investing in real estate as with any investment. There’s the risk that the local economy will tank and you will loose value instead of increase it; there’s the risk that the house will burn down; there’s the risk that someone will do a poor job of managing it and you won’t be able to collect all the rent or worse will have to evict someone and then invest even more money to repair it to rent to someone else. 

The good news is that if you invest where you live, there’s a good chance that you’ll have a great understanding of what the local market is doing, where with stocks, I’m guessing you won’t be as familiar with the challenges that Apple or Amazon are facing.  The physical risks of fire or tornado can be mitigated by owning insurance and the risk of getting a bad tenant can be mitigated by hiring a property manager that does their homework and does a good job of enforcing a lease.

While no investment is without risk, I believe that real estate is among the safest of investments and has the highest of returns.  If you own real estate outside of your IRA then there are also the advantages of using leverage to purchase, getting to write off depreciation on your taxes, and all the other advantages of owning a business. 

If you have any interest in becoming a real estate investor, my team and I personally own and invest in real estate and we can show you the ropes.  Call us, we can help…Helping YOU is what we’re here to do!

 

 

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