Top 5 Tips for Choosing Real Estate for Your Self Directed IRA
IRA (Photo credit: LendingMemo)
Your self directed IRA is ideal for investing in real estate. You have complete freedom to do what you want and invest in whatever type of property you please. As long as you stick to the rules put in place by the Federal Government, you’re free to make money within your IRA and look forward to retirement.
A real estate IRA isn’t like a gold IRA or a precious metals IRA, though. You have to seriously consider exactly what you invest in. A bar of gold is a bar of gold, but every property is different.
This is why you need to choose your property carefully. Here are some useful tips for picking a property for your IRA.
Your Budget and Financing
This is crucial. Before you start looking at properties, look at your budget and the financing options available to you. Remember, the self directed IRA will be the name on the deed to the property. Unfortunately, there aren’t as many financing options available to IRAs.
You won’t have the same finances available as you would when buying a property personally. Carefully consider what you can afford and stick to the budget. Only look at properties that fall firmly within your budget.
What is Your Goal?
Have a goal set in place. Are you planning on renting your property out or flipping it for some quick cash?
This will seriously impact the property you buy. A good rental property isn’t necessarily a good property to flip. If you have a clear goal and you know what you’re aiming for, this will narrow down the number of suitable properties that you’ll be looking at.
Chain Reaction
Will the work on one property allow you to move up?
It’s pointless buying a property, selling it on, and making a couple of thousand dollars. You’ll see most of this eliminated by tax at some point. It’s necessary to look at the long-term and where you want your real estate property to be.
It doesn’t mean you should be looking at the properties that will net you a big return all the time. It means getting a property that carries only a reasonable risk and promises a reasonable return.
Understand the Market
The national market is just as important as the local market with your real estate IRA. Check the trends and see where the market looks like its heading to. Real estate markets tend to move slowly for a while with the occasional boom (or bust).
Buy at the right time. Buy at a time when the market is on the up. If necessary, put off investing in your self directed IRA for now and wait until the market is better again.
Know the Property
Finally, make sure you actually visit the property. Always treat your new purchase as if you intend on living in it yourself. By treating it as an investment that you’re unconnected to, you risk becoming complacent.
Spend the time traveling to the property and inspecting it. Ask about any history of repairs and whether it’s at risk of being hit by a natural disaster.
By uncovering problems early on, you know what you’re going to have to overcome. You’ll be well aware of the scale of the job and whether you want to take it on.
First-time investors should consider working with a more experienced partner. Real estate isn’t an area that should be taken lightly. It requires real skill and expertise to make it work. You’ll learn quicker and take on less risk if you work with someone who has already been successful in this field.
Author Bio
Ashley has a financial background and has been analyzing various investment options for retired individuals. Here she shares her knowledge on Self Directed IRA with the elderly.
Category: Investing
