By J.P. Dahdah, Founder & CEO of Vantage
Dave Ramsey once said, “Financial peace isn’t the acquisition of stuff. It is learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” This is a fundamental concept when it comes to real estate investing. It is not the actual properties that matter so much as making more on them than you spend and earning enough money to re-invest.
One way to do this is by using your Self-Directed IRA to purchase income-generating real estate.
An ever-growing number of independent investors are using this profitable strategy. With your Self-Directed IRA, you can buy rental property as an investment, just as you would buy stock market securities. hat means you can use your retirement account to purchase income-generating real estate, and you can realize the rental payments tax-deferred. In the case of a Roth IRA, any income is considered tax-free growth. That is right! Rental income inside your Self-Directed IRA does not show up on your tax return.
There is also no need to report profit or loss from your income-generating real estate because the rent is not seen as profit but rather as a return on investment to your Self-Directed IRA. The same is valid with capital gains. Profits upon a sale are also seen as a return on investment to your IRA, and there is no Schedule E involved. All that is required is an annual fair market valuation of the total assets held within your Self-Directed IRA. The opportunity here is evident!
If you have the funds in your Self-Directed IRA to buy an income-generating property outright, then you can do that. There is also a way to use your retirement funds in conjunction with a loan. It is called a non-recourse loan. Using a non-recourse loan in conjunction with your Self-Directed IRA can create a powerful wealth-building tool. It means that you can purchase larger or multiple income-generating properties.
A limited number of banks will provide non-recourse loans, and it is worth your while to seek them out. Vantage can provide you with a resource list of these resources.
With the proper counsel and professional direction, you can open the door to many more investment opportunities for your Self-Directed IRA. Real estate investments you once thought were out of reach can now be part of your portfolio!
Here are some examples:
- If you purchase a retirement home, and you are years away from retiring, use your Self-Directed IRA to purchase the property and rent it out in the meantime. The income you receive in rent is tax-deferred until you start to take withdrawals. When you are ready, you direct your Self-Directed IRA Administrator to turn the property over to you as a distribution.
- If you use your Self-Directed IRA to purchase a residential rental property for $150,000 and the rents are $1,500 per month, you deposit the rents into your retirement account, and that is it. The rents are viewed as a return on investment to your IRA, so they do not show up as taxable income on your tax return.
- If you purchase land for $250,000 and are land banking for several years, use your Self-Directed IRA to buy the lot or tract. Once sold, all profit is viewed as a return on investment under the umbrella of your IRA.
You can use all sorts of other real estate strategies as an income generator, from single-family homes to multi-family complexes, retail, office space, industrial buildings, land, beach houses, vacation rentals, townhomes/condos, and much more.
If you want regular, reliable income throughout retirement, using real estate in your Self-Directed IRA could be a great option.
For more information on how you can discover your IRA investing alternatives, contact our team at (866) 459-4590 or Info@VantageIRAs.com.