By J.P. Dahdah, Founder & CEO of Vantage
Single-family real estate investing strategies can provide a powerful combination of value appreciation and income; two very attractive features for investors who understand real estate risks too.
But what many investors don’t understand is that you can own real estate within an IRA. In fact, section 408 of the Internal Revenue Code allows for the purchase of property with funds held in many common forms of IRAs, including a Traditional IRA, a Roth IRA, SIMPLE IRA and a Simplified Employee Pension (SEP) IRA.
The question then becomes what type of investing strategies work and how can a savvy investor employ these strategies.
In this post we will discuss three successful single-family real estate investing strategies.
1. Buy and Hold. One of the most popular strategies used to generate income is to purchase a single family home and rent it to tenants. The demand for rentals in the United States stands at multi-year highs, as the real estate market is still shaky in the wake of the 2008 financial crisis. With home prices still scraping along the bottom according to the Case Shiller US Home Price Index, the opportunity to purchase a home in an attractive area at rock-bottom prices is available to savvy investors. In addition, owning a single-family home within a Self-Directed IRA offers a number of tax advantages, adding to the value of the investment.
2. Fix and Flip. This strategy relies on an investor’s ability to purchase distressed property (either physically or financially distressed), and then increase the property’s value by fixing it up quickly. The idea is to resell the house in a short period of time (“flipping” it), generating a quick return on investment. This strategy has become increasingly popular with Self-Directed IRA investors because the tax favored advantages that an IRA offers eliminate the impact of short-term capital gains tax typically incurred on deals that are less than twelve months in duration.
3. Private or Non-Traded Real Estate Investment Trusts (PREITs). A third strategy is to purchase real estate investment trust units that are not publicly traded. The investment objectives of these private trust funds can vary and be focused on a multitude of real estate strategies, such as, single family homes, commercial properties and even international real estate holdings. Although this strategy takes the control of the investment out of your hands, it removes some of the leg work involved in finding strong properties that will generate solid returns. With the right managers, this can be a relatively hands-off strategy that produces a handsome profit.
For more information on how you can discover your IRA investing alternatives, contact our team at (866) 459-4590 or ClientService@VantageIRAs.com.