For discerning future retirees, the question is always, how do I get there? The liberation of retirement beckons many, but most people silently wonder, will they have saved enough to enjoy it? Or how can I pay my daily living expenses on my retirement income? It’s surprising to encounter people who not only retire early, but they have the funds to eat out at fancy restaurants, travel the world and yet still manage a comfortable lifestyle. These are usually prudent investors, retirees who are living off their return on investments (ROI).
Retirement is a status that many wishes for, but few achieve the savings level to spend, live and not worry about money. One of the surefire ways to reach a point of financial security is to invest in real estate. That’s not to say that regular investment vehicles such as, stocks and bonds aren’t good retirement options. However, to reach a level of comfortability, it’s worth taking a closer look at self directed IRA real estate.
First off, learn, inquire and discern. Learn everything that you can about using IRA funds to invest in real estate. Then inquire about the benefits, how is it going to increase your retirement funds and what’s needed to cash out early? Finally, take time to discern the buying advantages of owning real estate versus purchasing real property. You’ve probably seen the term “real property” before, it just refers to buying the land and the buildings on it.
Self-directed real estate requires that owners buy and pay for all expenses related to the property from the IRA funds. Unlike, real property, the property can’t be mortgaged or rehabbed for personal use. If the property is a fixer upper, appropriate personnel must be hired to perform repairs. Meaning the property owners can’t perform any work themselves. To maintain the benefit of tax deferment, you can’t occupy the dwelling or derive any personal benefit from the property. You must follow the tax code laws.
When you use your IRA to purchase real estate, the house is regarded as an investment only by the IRS. This goes for the property owner and their relatives. So, you can’t purchase property through a self-directed account and have a family member live in the house. The best way to yield the highest return on IRA purchased properties is to use a flipping technique; buy low, perform upgrades and sell for a higher price than what you paid.
If you have previous experience in house flipping, then it will be the easiest way to cash out. By “cash out” we are referring to the simplest method to take advantage of either a 401K or self-directed individual retirement account. Since IRA funds are tax exempt, you can flip and sell as many houses as you like. The benefit is that you won’t have to pay federal or state income taxes, when you sell the investment property.