stable investment because it is tangible. Tangible assets like real estate or gold don’t react as quickly to daily market fluctuations. Because real estate is separate from the daily trading activity that stocks experi- ence, it can provide stability when stocks are volatile. REAL ESTATE INVESTING IN A RECESSION When a recession takes hold, your first instinct may be to do some strat - egizing with your portfolio. Seeking out recession-proof investments can help balance stock holdings. Real estate is more stable than many other investments when the economy slows down. Rental properties can function as a natural hedge against market volatility. Assuming tenants can keep up with their financial obli - gations, a rental property can provide a steady stream of passive income even when the stock market is down. And demand for rental properties goes up during a recession because if homeownership is down, then people must live somewhere. Funding for real estate invest- ments also has many flexible options.
Getting a loan is one option for funding a rental property purchase. However, during a recession, lenders tend to tighten the purse strings, making it harder to borrow. In that scenario, using a self‑directed IRA to purchase an investment pro- perty could make sense and offer some tax advantages. That said, there are some guidelines to keep in mind. First, it’s important to remember that investing in real estate using your retirement funds comes with some strings attached. The property in question must be an allowable investment. That includes vacant lots, raw land, single-family or multi-unit homes, apartments, townhomes, condominiums and foreclosures. Mobile homes and timeshares, on the other hand, are generally excluded. Next, there are regulations regarding the property’s use. The IRS does not allow you to live in or use a property owned by you. Furthermore, any improvements or repairs to the property can’t be made by you or by a company that is owned by you or another disqualified person. In other words, if you run a painting business, you’d have to outsource painting your rental property to someone
else. Otherwise, you’d forfeit any tax benefits associated with owning real estate inside an IRA. Finally, remember that things like maintenance, repairs, property taxes, and even your earnest money deposit when buying the property must come from the IRA to avoid triggering tax consequences. For that reason, it’s important to make sure you’re planning ahead properly if you’re considering using a self-di- rected IRA to buy a rental invest - ment, and be certain your IRA has enough funds for any of these types of expenses. •
Robert Knight is the founder and CEO of White Stone Developments LLC. He has 15 years of experience in the real estate industry as an investor, contractor, and
Florida realtor. He is a local market expert in Southwest Florida, currently focused on new construction opportunities in the Cape Coral/Port Charlotte area. White Stone is a leading investor-focused builder helping build-to-rent investors find off-market land and build single-family and multifamily homes specifically designed for long- term rentals and Airbnb investments.
thinkrealty . com | 19
Made with FlippingBook Online newsletter