Self-Directed IRA for Real Estate Investment: Why Investors Should Consider It

While many investors may know that retirement savings accounts such as individual retirement accounts (IRAs) can be hugely beneficial for accumulating funds for the future, they may not be aware that there is a world of other investment options available to them.

In this article, I will explain how investors like you can utilize sources of funds such as self-directed IRAs for real estate investments and help you understand why real estate investing could be a great addition to your portfolio.

Understanding Self-Directed IRAs

IRAs are tax-advantaged retirement accounts offered by most financial institutions, such as banks, brokerage firms, or mutual fund companies, that individuals can contribute to annually. Investors drop money into the IRA, allowing it to grow slowly and steadily over time before withdrawing it in retirement.

IRA accounts held at traditional investments brokerages usually provide limited investment options such as stocks and bonds, mutual funds, or other conventional securities. Conversely, self-directed IRAs offer similar benefits with a broader range of investment options. With self-directed IRAs, investors have increased flexibility to invest in more comprehensive assets, such as real estate, cryptocurrency, and private equity.

A few key differences to consider when comparing traditional IRAs to self-directed IRAs include:

• Investment options: IRAs controlled by brokerages and banks offer a minimal range of investment vehicles compared to self-directed IRAs, allowing a much broader selection of alternative investments.
• Control and flexibility: Investors have greater control over self-directed IRAs and more agency when choosing where to invest funds. IRAs have more limitations and thus are more restrictive.
• Complexity: Due to the broader range of investment options, self-directed IRAs tend to be more complex and require greater diligence from the investor. In contrast, the limited options make traditional IRAs simpler.
• Custodian selection: Traditional and self-directed IRAs require a custodian to handle account funds. However, self-directed IRAs typically require specialized custodians to allow for the desired alternative investment.
  
  

Note that IRAs are highly regulated by the Internal Revenue Service (IRS), and it’s crucial to comply with regulations to maintain the integrity of the accounts. This is a broad comparison, and you should consult with a tax professional before making an informed investment decision.

Should I Use a Self-Directed IRA for Real Estate Investments?

Now that you understand what makes self-directed IRAs different from IRAs you that are controlled by brokerages or banks, let’s explore what you can do with more investment options. Along with the stocks and bonds associated with traditional IRAs, some alternative investment options include real estate, crypto, and private equity.

• Real estate: Investing in real estate includes commercial properties, residential properties such as single-family homes, and multifamily real estate such as apartments, condominiums, and more. Real estate investments provide income through monthly rental payments and the potential for properties to appreciate and sell for a profit at a later date.
• Stocks and bonds: While self-directed IRAs can offer more investment options than traditional IRAs, they still provide access to conventional assets such as publicly traded stocks and bonds. However, self-directed IRAs offer increased control over decision-making regarding which stocks and bonds to choose based on their preferences.
• Cryptocurrency: Some self-directed IRAs offer investments in digital currencies like Bitcoin, Ethereum, and Doge. Cryptocurrency has become popular in recent years, although staying on top of IRS guidelines and custodian policies is essential.
• Private equity: Private equity and venture capital funds are available to investors using a self-directed IRA and provide partial ownership of private companies in exchange for investing funds from the self-directed IRA into the company.
  
  

Real estate, in particular, can be an enticing investment opportunity for many investors due to its unique convergence of benefits. Real estate simultaneously offers investors a stable, potentially lucrative source of income with monthly rental payments, the potential for the property value to appreciate and sell for a profit, hedge against inflation2 with cost of living increases and rising property values, and a slew of tax benefits, including powerful tools such as 1031 exchanges that allow investors to defer capital gains taxes on the sale of investment properties.

But how does real estate stack up against other investment opportunities available to those with self-directed IRAs? Let’s explore these options further.

As you can see, each option has its benefits and caveats. It’s crucial to understand that all investments come with some level of risk and require thorough research, due diligence, and professional advice. You should always consult with a financial advisor before investing funds from your self-directed IRA or moving funds from a retirement account such as a traditional IRA or 401(k) into a self-directed IRA.

For many, real estate will be the perfect addition to their investment portfolio due to the convergence of positive attributes. For example, while cryptocurrency may offer the potential for extremely high returns, it is also a much riskier investment, as cryptocurrency is extremely volatile and prone to large swings in value. Real estate is a much more stable asset while still offering rewarding returns. However, many may also be deterred by how hands-on it can be without hiring someone to manage the property (which can cut profits).

For those people, there are still ways to enjoy many of the benefits of real estate investing without having to endure many of the hurdles and hassles themselves. That’s where Canyon View Capital can lend a hand.

Canyon View Capital Offers Products Targeting Truly Passive Real Estate Investing

If you’ve decided to use your self-directed IRA for real estate investment, Canyon View Capital can help. For over 40 years, our principals have managed a portfolio of real estate now valued at over $1 billion3. We want to help investors like you get a slice of the pie by investing in one of our funds.

Driven by our “buy and hold” strategy, Canyon View Capital targets  truly passive real estate returns without needing to shoulder the burden of property management.