Real Estate SD-IRA Frequently Asked Questions

Why do you think investors are seeking out more non-traditional investments?

Mutual Funds, Stocks and Bonds have been the bread and butter of our economy for years.  Though the stock market typically goes up over a 10-year period before dipping, the benefits and long term gains of real estate holdings far outweigh traditional markets—if you know what you’re doing.  Personally, I feel more in control with hands-on management of a tangible investment like real estate. In my experience, I’ve been able to leverage it, insure it, and achieve far greater returns while limiting variables, as opposed to playing with electronic securities.

Is investing in real estate the same as investing in a REIT? Which is better?

A REIT is a corporate entity that buys and sells large pools of real estate. Investors have absolutely no say or control in how the managers of the entity choose investments.  However, with a self-directed IRA, you are able to hand-pick your investments. With a self-directed IRA, you can perform due diligence for your real estate investment by driving down the street, putting the key in the door and getting the deed in your hand.

Strategies for self-directed IRA holders include buying, selling, and holding contracts, notes, land, buildings, and apartment complexes.  These types of real estate investments allow you the ability to control and limit variables, in ways REITs cannot.  Holding rentals for cash flow (hiring good property management is essential here), private lending, and rehabbing also tend to give much better returns than a REIT.

What’s your analysis of the current real estate market and how are investors adapting to it?

We are seeing an unfortunate amount of both homeowners and banks in very difficult situations. Many of these occurred as a result of predatory lending practices from 2005-2007, and most recently as a result of the aftermath of the collapse (job loss, cut in pay, medical & credit card bills, etc).  We all must remember this is part of the normal market cycle that always repeats itself in our economy. The exceedingly fast BOOM in 2004-2006 was bound to crash. It’s important to anticipate that what goes UP, must come down at some point.

Over the past year in Massachusetts alone, 23% of ALL single family home sales have been distressed sales (foreclosures or short sales). Currently, they make up 14.25% of our entire inventory.  For the most part, homeowners cannot finance these houses, as they all need some major repair before they qualify for conventional financing.  This means cash buyers (or self-directed investors) are able to strike some good investment deals.  If sellers are homeowners who owe more than their home is worth, a quick cash sale may even mean helping them avoid foreclosure.  Prices and mortgages are at all-time lows, and private lending returns at an all-time high – if you have the cash and wherewithal to buy correctly and manage your investments well.

What are the main advantages to using a self-directed IRA to invest in real estate?

A self-directed IRA gives investors a lower-risk investment strategy as well as a tax savings vehicle. Using it to invest in real estate becomes a truly effective way for you to achieve your longer-term financial goals.

What are some ways individuals can begin investing in real estate using their self-directed IRA?

Real estate investors using their IRA can begin in a number of different ways—private lending, note buying and selling, assigning contracts for a “wholesale fee,” residential or commercial buy and hold strategies, and many more.  Make sure to consult your Entrust representative with any questions on the process, and also be sure to speak with your CPA to avoid any “self-dealing” transactions, which are subject to taxation/penalties.

This Q&A was recently featured in Entrust’s monthly newsletter.