Planning for retirement doesn’t mean you have to stick to traditional investment options like stocks and bonds. If you’re looking for a way to diversify your portfolio and take control of your financial future, a Self-Directed IRA (SDIRA) for real estate might be the perfect solution.
A Self-Directed IRA allows investors to invest in real estate in addition to traditional assets, offering tax advantages, potential higher returns, and portfolio diversification. This guide will explain how it works and how to start investing.
What Is a Self-Directed IRA for Real Estate?
A Self-Directed IRA (SDIRA) is a type of Individual Retirement Account that gives you the freedom to invest in a broader range of assets—including real estate, private equity, precious metals, and more.
Unlike traditional IRAs managed by brokerage firms, an SDIRA is administered by a qualified custodian but allows you to make your own investment decisions. This opens the door to real estate as a retirement investment strategy, all while retaining the tax advantages of a traditional or Roth IRA.
Benefits of Investing in Real Estate Through a Self-Directed IRA
1. Portfolio Diversification
Real estate provides a tangible asset that can reduce portfolio risk by balancing stock market fluctuations.
2. Tax Advantages
Depending on the type of SDIRA (Traditional or Roth), you can enjoy tax-deferred or tax-free growth on your investments.
3. Potential for Higher Returns
Real estate investments have historically provided strong appreciation and rental income, making them a powerful wealth-building tool.
4. Asset Control
You choose the properties you want to invest in, giving you control over your financial future.
How to Invest in Real Estate with a Self-Directed IRA
Step 1: Open a Self-Directed IRA
To start, you must open an SDIRA with an IRS-approved custodian. Choose a reputable custodian who specializes in real estate investments.
Step 2: Fund Your SDIRA
Transfer funds from an existing IRA or 401(k) or make a new contribution based on IRS limits.
Step 3: Choose Your Real Estate Investment
Decide whether you want to invest in single-family homes, multifamily properties, commercial real estate, or land. Your SDIRA funds will be used to purchase and maintain the property.
Step 4: Follow IRS Guidelines
You cannot live in, use, or personally benefit from the property.
All expenses (repairs, maintenance, insurance) must be paid from the SDIRA.
All income must be returned to the SDIRA account.
Step 5: Manage and Grow Your Investment
Your rental income and profits grow tax-free or tax-deferred, helping you build wealth for retirement.
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