One of the most googled questions associated to real estate investing is, “How do I secure funding?” It’s a fair question to ask, as most investment opportunities come with large price tags. While there are dozens of ways to answer this question, there is one often overlooked option: your retirement account. Many people don’t know that they are able to use a self-directed individual retirement account, or IRA, to finance an investment opportunity.
A self-directed IRA is simply a traditional or Roth IRA where a custodian allows you to make a variety of investments. Investors can choose to direct their money towards promissory notes, precious metals, bonds, or larger investments, such as real estate.
This option has been growing in popularity for awhile now, as investors realize using a self-directed IRA allows them access to capital and a creative opportunity to save money for the future. Here’s why this might be a great source of funding for you:
A self-directed plan allows investors to grow their retirement savings tax-deferred or tax-free, depending on the type of account you possess. For example, if you have a Traditional IRA, you won’t have to pay taxes on your earnings or contributions until you start using the funds during retirement. On the other hand, with a Roth IRA, your money will appreciate tax-free.
A lot of real estate investors are looking for ways to maximize their investment portfolio, and a self-directed IRA can help. Since you are able to reinvest profits from one project into another with this plan, you have continuous funds to dip your toes into all types of real estate investments. Buy and flip a house, invest in a multi-family property or commercial property. Each new investment will bulk up your portfolio and contribute back into your IRA.
Safety and Security
IRA accounts are protected by federal and state bankruptcy laws, meaning that its assets are completely protected from creditors and debt collectors. Additionally, not only is your money safe, your heirs are too with this plan. Self-directed IRAs enable you to leave the contents of the account to heirs, providing safety and security to your children or those you love.
Best of all, getting this process started is incredibly easy. Simply open an account and provide the funding by transferring or rolling over your existing retirement account, such as a 401(k), or by making regular contributions into a self-directed IRA.
In reality, funding options for investing in real estate are endless, even if it doesn’t seem like it. However, a self-directed IRA is a favorite secret of experienced investors, as it provides great returns and a significant cushion for retirement. Now, you too can choose how and where your retirement savings is invested and create a more comfortable future for yourself and your family with a self-directed IRA.