GROWTH EQUITY GROUP
TOO OFTEN, INVESTORS stop short of adding real estate to their port- folios because the initial investment appears to be complex, and the long- term commitment labor-intensive. And rightly so: it can be difficult and costly to find appropriate properties and investors might not have the skills or resources to determine a property’s income-generating viability. Appropriate and affordable financ- ing can be difficult to find, with most non-recourse loans typically at rates of around 12 percent. Not to mention, the first thought to pop into an individual investor’s mind when he or she hears “income property” is a broken water heater in the middle of the night. However, specialized real estate investment groups can offer com- prehensive services to make both the initial and long-term investment in real estate simple and user-friend- ly for individual investors. These full-service firms handle everything from market analysis to building per- mits and cost of living index. Often, the firms buy or build properties in bulk at a discount achieved through research, relationships and years of expertise in the field. In addition to providing inventory, they enlist a proper maintenance and manage- ment team to avoid the late-night water heater scenario. BE THE DIRECTOR OFYOUR RETIREMENT While the economy has shown signs of sustained recovery, continued un- certainty and market volatility on Wall Street prompt many investors to search for non-traditional methods to diversify their retirement portfolios. Self-direct- ed IRAs (SDIRAs) have gained mo- mentum as the go-to investor’s choice to safely and effectively accomplish this while planning for the future. One of the many advantages of a self-directed
IRA is the opportunity to experience significant gains by investing in alter- native assets and receive a sizable tax incentive. Similar to a traditional IRA, a SDIRA is also a tax-deferred retire- ment account that provides additional earning power with rental properties which accumulate income inside of the IRA with no capital gains tax. When utilizing a SDIRA, it is important to remember that certain rules still apply. Each asset has a different set of restric- tions and investors must be aware of prohibited transactions to avoid penal- ties from the IRS. With real estate, for example, all income generated from a property must go directly into the SDIRA; nei- ther the account holder, nor a relative can live in the property; the property cannot be previously owned by family members; non-recourse loans must be used if the property is being financed; expenses related to the property can- not be paid with personal funds; and SDIRA funds cannot be used to pay off a personal mortgage. OWNINGWITHOUT LANDLORDING Real estate not only introduces a new asset class to a retirement plan for true diversification, it protects against market fluctuations and allows inves- tors to hedge inflation. While many traditional portfolios consist of assets that are highly correlated and can rise and fall in value together, income-pro- ducing real estate offers investors four ways to generate returns: 1 RENTAL INCOME 2 PROPERTY VALUE APPRECIATION 3 EQUITY GENERATION OVER TIME 4 FINAL SALE OF THE PROPERTY Additionally, when utilizing a non-recourse loan to finance the property as opposed to traditional
financing— an IRS requirement of SDIRAs— investors can leverage their entire account to increase buy- ing power. For example, by using 50 percent leverage, an investor could buy a $100,000 property by putting down only $50,000 in principal out of the SDIRA, and utilize a non-re- course loan for the balance. The ad- vantage of non-recourse loans is that they are based on the asset or prop- erty’s ability to pay off the remaining balance and the lender cannot seize the borrower’s other assets in the event of default.
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