Think-Realty-Magazine-September-October-2016

PERSPECTIVE: IRA INVESTING

intend to generate income through renting the property. It is usually much easier to manage a property close to home than one far away. Property managers can take on a lot of the day-to-day responsibility, but there is a certain security in knowing that you’re nearby in an emergency. That was the case for Entrust clients in Arizona, Florida and Texas, who chose in-state properties almost all the time. Colorado clients were more adventurous, choosing to invest out-of-state 28 percent of the time. Californians continued to set the pace for investments out of state; more than one-third of their purchases were out of state, most often in Arizona (9 percent), Texas (7 percent) and Nevada (5 percent). What IRA Investors Paid for Properties As you might expect, given the nation- wide uptick in the real estate market, the average purchase price paid for properties in 2015—$177,777—was higher than the 2014 average price of $146,490. But the definition of “local” means a fair degree of variation from one real estate market to the next. Regio al The Western and Southern markets made up almost two-thirds of real estate investments nationally. The California, Florida, and Texas markets in particular experienced continued growth. The lower cost of living and attractive property prices in so- called “s condary markets” like Austin, Texas, Portland, Oregon, Nashville, Tennessee, and C arlotte, Nort Carolina make these high-potential markets. Florida markets are improving as well,

In 2015 prices: • Increased $11,000 in California • Dropped an average of $19,000 in Texas • Increased a whopping 78 percent in Florida The average purchase prices in En- trust’s top five markets were: California – $204,000; Texas – $161,000; Arizona – $130,000; Colorado – $151,000; and Florida – $123,000. Types of Property Bought by IRA Investors Single-family houses are Entrust cli- ents’ first choice of investment property, representing 44 percent of all purchases. Multifamily residences come in next, at 28 percent. Vacant land (12 percent), com- mercial real estate (3 percent) and various other properties (12 percent) round out their investment preferences. Which Type of IRA Investors Used More than seven out of 10 Entrust real estate investors use traditional IRAs— those that give a tax deduction at the

time of contribution. That is a 2 percent increase over 2014. Other IRA types are holding steady as real estate investment vehicles: 15 percent for Roth IRAs, 12 percent in SEP IRAs and a slight dip to just 1 percent for Simple IRAs. There may be a good reason to consider using a Roth IRA. Real estate is typically held as a medium- to long-term investment, for a median of five years, according to the National Association of Realtors. During that time, if your Roth IRA has satisfied the qualified distribution criteria, the Roth IRA gets a tax-free revenue stream from the rental income. Likewise, any underly- ing appreciation in the market value of the property is tax-free. Who is Buying and Who is Selling? While it may be hard to differentiate investor buyers from homeowners in the overall data, it is useful to know just who is buying and selling. For example, the relatively small percentage of younger Baby Boomers in the market points to the opportunities for those buyers to leverage their existing retirement savings and

with population and employment both growing. Anothe demographic to watch is the growing number of Baby Bo choosing to retire in many of these locations. Following the national trend, Entrust clients demonstrate

IRA Investing Hot Spots Market research report shows the where and shy of real estate investing with IRAs.

purchase r al est te in the West or South in 2015.

by THE ENTRUST GROUP

Entrust Real Estate Transactions by Region

T he convergence of two important trends—the improving U.S. real estate market and growing interest in self-di- rected retirement savings plans—presents an opportunity for people saving for their post-working years. Self-directed IRAs give you the freedom to invest in a wider range of assets, including real estate. The following data from clients of The Entrust Group, along with insights from respected organizations like the National Association of Realtors and Zillow, can help put the opportunity in perspective. Where Entrust Clients Bought Real Estate A look at where Entrust clients bought investment property in 2015 shows California and Texas still in the lead, with numbers little-changed from 2014. Both Arizona and Colorado saw 2 percent growth in purchases, while transactions

fell slightly in Florida (-2 percent) and Mis- souri (-3 percent percent). The top 12 states where Entrust clients bought real estate include: California (32.0 percent), Texas (9.0 percent), Arizo- na (7.5 percent), Colorado (7.0 percent), Florida (6.0 percent), Missouri (4.0 per- cent), Illinois (3.0 percent), Michigan (3.0 percent), North Carolina (3.0 percent), Georgia (2.5 percent), Nevada (2.5 per- The Western and Southern markets made up almost two-thirds of real estate invest- ments nationally. The California, Florida, and Texas markets in particular experienced continued growth. The lower cost of living and attractive property prices in so-called “secondary markets” like Austin, Texas; Portland, cent) and Oregon (2.5 percent). Real Estate Transactions by Region

Oregon; Nashville, Tennessee; and Charlotte, North Carolina, make these high-potential markets. Florida markets are improving as well, with population and employment both growing. Another demographic to watch is the growing number of Baby Boomers choosing to retire in many of these locations. Following the national trend, Entrust clients demonstrated confidence in the Western market, with 3 percent more trans- actions in 2015 over 2014. Four out of five IRA investors chose to purchase real estate in the West or South in 2015. One of the advantages of buying real estate as an investment, unlike buying a primary residence, is that you can buy any- where. That might be where you want to live once you’ve retired or where you believe you can get the best return on your investment. Nonetheless, many people still prefer to invest close to home, especially if they

5 % NY NH CT RI MA

55 % ID

15 % MO IA

IL IN

West

25 % AR MS

Midw

Sout

North

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