5 Reasons Self Directed IRA Real Estate Investing Makes Sense

Did you know you can use a self-directed individual retirement account (SDIRA) to invest in real estate passively? Here are 5 reasons why it makes sense.

1. Free Yourself From the Stock Market

With a SDIRA account, your money is not trapped in the stock market. Many people sell their stock holdings when values go down and hold cash in their IRA until the market improves. The reason to hold cash in your IRA is because you don’t really have any option besides buying stocks (including mutual funds) and bonds.

A SDIRA opens up the world of alternative investments to you. Your money does not need to be trapped on Wall Street! According to Investopedia, “alternative investments can include things like private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Real estate is also often classified as an alternative investment.”1

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2. Diversify Your Investment Portfolio

You self directed IRA enables you to diversify your retirement funds into alternative investments thus reducing risk while you enjoy seeing your capital increase in value. Some alternative investments, such as real estate, are not correlated to the stock market.

This means when the stock market goes down, real estate doesn’t go down (unless, of course, there are other market conditions, unrelated to the stock market, that would specifically cause real estate to lose value). This is a huge advantage of having a SDIRA.

3. Get Higher Returns

Diversifying your portfolio by investing in alternative investments can get you higher returns than the stock market. This is true especially during economic downturns and declining stock prices.

Higher returns mean you have a chance of beating inflation and getting more profitable returns on your investment.

4. Enjoy Tax Benefits

By using a SDIRA to invest in alternative assets, you can reap the rewards of tax benefits that you get because it is an IRA account. This is advantageous compared to using your non-qualified funds to invest in alternative assets which will not be eligible for the same tax benefits as IRA funds.

5. Set It and Forget It

Well this benefit may not be true with every alternate investment, but it works for some. Real estate is a good example. When you invest in real estate with your SDIRA, you can select a fund or syndication deal that will use your funds to invest for 3 to 5 years or longer. This frees you up from continual worry like you do when your money is in the stock market.

The key to this strategy relies on doing some homework on the investment fund and the fund manager. Once you find a suitable opportunity that makes sense, you can invest long term in the fund and enjoy watching your capital grow.

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John Marion

Since 2010 John has built a real estate business specializing in residential investment property, home sales, rentals, and property management.