A Real Estate IRA Success Story

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At New Direction Trust Company, we believe retirement investors should have the power to direct their financial futures with alternative IRA investments and hedge their portfolios against stock market volatility. Rick, one of our long-time account holders, has exemplified this spirit and has demonstrated the potential success that investors can enjoy by buying, selling, and renting property with a self-directed retirement plan.

Rick’s story began well before he learned about self-directed IRAs. He had invested in property in Hawaii and Las Vegas, until the turn of the millennium when he directed his attention to publicly traded equities. 10 years later, Rick and his fellow Wall Street investors endured the brutal economic downturn of 2008-2009. Rick decided it was time to re-adopt the tried and true investment approach from his past.

He was surprised to find a rich market of attractive properties during a visit to Greeley, Colorado. While helping Rick’s son settle into a condo for college, his realtor mentioned that he was familiar with using tax-advantaged retirement dollars to invest in real estate. He and Rick then began reviewing suitable properties and shopping for competitive non-recourse financing. “Non-recourse” meant that Rick’s personal assets could not be offered as security on the IRA loan; only IRA holdings—including the applicable investment property—could be offered as collateral.

By utilizing his financial team and conducting due diligence on every factor of his IRA investment, Rick was able to position his self-directed IRA for a successful run in the real estate market. Rick’s IRA acquired six houses and two vacant lots over the course of six months. He listed the two lots at twice his IRA’s purchase price and sold them both within 10 months. For good measure, he also invested in 15 other homes and condos using his non-IRA money. Rick’s IRA assets produced solid cash flows and have since been sold for considerable profits.

Three key takeaways from Rick’s story:

  • Your self-directed account can take out a loan for property just as an individual can. Debt leverage can boost your IRA’s purchasing power and, as was the case with Rick, create an opportunity for a higher return on investment than if you pay exclusively with cash.
  • You don’t have to fear unrelated business income tax (UBIT) when it comes to financing IRA real estate. While UBIT may come into play for the financed percentage of rental income, a cash-producing IRA asset can help eliminate the debt percentage over time. The sale of a debt-financed property may subject your IRA to UBIT, but no such obligations would apply if you sell the property at least 12 months after paying off the non-recourse note.
  • You can implement your preferred investment strategy for IRA and non-IRA income simultaneously. Due to the relative similarity of the two investment processes, you can embrace alternative investment options for your day-to-day income or personal wealth creation, all while building your long-term retirement wealth with those same options.

For more information about self-directed investing, feel free to call our office at 877-742-1270 or send us an e-mail at info@ndtco.com.

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