A real estate IRA doesn’t have to hold tangible property. The power of self-directed investing lies in your capacity to put almost any strategy to work for your retirement. There are many “subcategories” in the real estate field—long-term rental properties, fix & flips, land speculation, etc.—all of which your self-directed IRA can hold. Real estate options are other seldom-addressed but viable possibilities for retirement investors.
An options contract gives the holder the right to purchase an asset for a specific price by a specific date. Unlike futures contracts, options are, as the name implies, optional. Upon reaching the contract expiration date, a holder is not required to execute the stipulated transaction if it’s not economically prudent.
For example, a self-directed investor may be keen to acquire a $250,000 property that he can’t afford at the moment. He believes it will appreciate to $300,000 in the near future but would prefer not to finance the investment because he’d rather avoid unrelated business income tax (UBIT). Instead, he may purchase an options contract from a seller who isn’t as confident that the value will rise:
This investment model enables you to tap the real estate market without the responsibilities of managing physical property. If you do exercise a contract and obtain property on behalf of your self-directed plan, you will have presumably done so with an opportunity for profit in the near term. At the very least, you’ll have the flexibility afforded by self-direction to proceed as you see fit. If you don’t exercise an option, you’ll have only paid the contract fee and can move on to other investment endeavors.
It may behoove you to consult with a financial professional before engaging with real estate options, as these assets can be highly speculative. For more information about self-directed retirement, please don’t hesitate to give us a call at 877-742-1270 or send us an e-mail at firstname.lastname@example.org.