Are you saving enough for your retirement? How could one get an idea of the right size of retirement fund? How much money is sufficient to take care of your medical bills and daily living expenses? Well, the only answer is “not certain” and the best thing that you could prepare for is to build a retirement fund that never ends.
All the conventional methods of investing your hard-earned money will offer a sustainable return and careful planning can help you survive well. Most of the people invest through conventional methods including mutual fund investments, bond purchase, and share market. However, it is possible to gain substantial returns with invest options such as self-directed IRA.
A self-directed IRA (Individual Retirement Account) is an investment tool that allows individual investors to invest money in broadened investment options such as real estate, private tax notes and liens. Banks, financial institutions and even private custodians administer self-directed IRA accounts.
With the improving housing market and land prices, it makes perfect sense to invest in real estate and self-directed IRAs are the right tools for it.
1. Eligibility Criteria for Investment Properties
Investors can use their retirement fund for purchasing commercial property. However, the investor or any of his family should not hold the ownership of the property. The purchased property should not be the investor’s personal residence or office or occasional rental home.
Start by opening an IRA custodial account and transfer the existing retirement fund (solo 401k or regular 401k) into the account. The purchase is in the name of the IRA account and it is possible to use self-directed IRA for house flipping. However, there is a cap on the total number of transactions that you can do in a specific period of time.
If you are planning to open a self-directed IRA for investing in real estate, make sure you understand some rules including unavailability of a traditional mortgage in the IRA. Every IRA account comes with a certain fee and the same holds true for Real Estate IRA. Any upgrades, maintenance, and costs associated with ownership of the property are drawn from the IRA account. Make sure to save sufficient funds in the account for these costs.
The most important part of managing an IRA is to follow all the rules otherwise you may end up paying more money in tax penalties. Investing in a self-directed IRA is an excellent choice but make sure to consult a financial advisor before putting all your money into the account.