self-directed ira

The Real Estate Investor’s Guide: Using a Self Directed IRA to Buy Real Estate

Using a self directed IRA to buy real estate

 

“Every nickel I make gets put back into real estate.”

This is what an investor told me my first week of working on Wall Street. At the time I didn’t understand it, but this quote epitomizes the mind of the typical real estate investor. All they know is real estate, all they trust is real estate, and they are not remotely interested in any other type of investment.

I get it. Real estate is a very attractive asset class. I discussed some of the reasons for this here, These Top 7 Powerful Tools Can Create Legacy Wealth from Real Estate, and Inflation – The Secret to Building Wealth in Real Estate. Real Estate is unique in a number of ways. One of which is the ability to use massive amounts of leverage. When leverage is paired with inflation, you have a powerful combination.

As great of an asset class as real estate is, many real estate investors still come up frustrated.

While real estate investors may choose to invest every nickel they have into real estate, they are reluctantly forced to invest their retirement accounts into stocks, bonds, and mutual funds. Some investors are so turned off by non-real estate investments, they choose to not contribute to their IRAs or 401ks at all. This is mainly due to the “inadequacies” (in their mind) of the other available investments.

If they only knew the truth…

So rather than saving for their retirement in a tax-deferred or tax-free account, and potentially getting the significant tax deductions, they choose to ignore the retirement account option completely. Until now…

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How Self Directed IRAs Can Help Protect You From Stock Market Crashes and Halted Trading on Exchanges

Self Directed IRAs can help protect you from stock market crashes

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.   – Warren Buffett

If you were paying attention yesterday, then you probably heard that the New York Stock Exchange (NYSE) halted trading for 3.5 hours and Chinese stock market continue to crash. So much for Wall Street having a lazy summer.

Should you worry about these events?

Yes… and No.

As of today you should not have much to worry about… unless you have money in Greek banks, then you are allowed to sweat. While you may not have much to worry about today, what if these events were more pronounced? What if they impacted your investments in a more direct way? What if the Greek crisis causes stock markets to crash. What if the stock market closed and didn’t reopen for 5 years? Would you be happy with your investments?

Warren Buffett has made a statement in the past that investors should invest as if the stock market would be shut down and not reopen for the next 5 years. What companies would you want to hold in this scenario? Would you want to hold stocks at all?

Lets take that concept a step further. Do you have 100% of your retirement funds in mutual funds, stocks, or bonds? If so, then why? Is it because you want to invest in the stock market? Or is it because you are not aware that you can invest outside the stock market? If it is the later, then you are in good company. More than 80% of the investing public is not aware that they can invest their IRA outside the stock market. Less than 10% is actually investing in alternative investments with their self-directed IRA or self-directed 401k.

Are traditional investments better than alternative investments…

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8 Common Mistakes Using a Self Directed IRA

 

self directed IRA mistakes

I decided to write this post because over the years while working with clients, I have come across the same mistakes over and over again. Some of these mistakes are from a misinterpretation of the rules, some are through a lack of knowledge in certain areas, and the most common one being unaware of the capability to invest in alternative investments inside a self directed IRA. While most of the rules are easy to find, unfortunately they don’t all appear in one place. I wrote this post to help address these common mistakes using a self directed IRA.

What is a self directed IRA?

I want to define “self directed IRA” for people who are unaware of the definition. A self directed IRA is an account with preferential tax treatment, which is capable of investing in alternative investments. These alternative investments could be assets such as real estate, tax liens, private mortgages, gold & silver, horses, livestock, farmland, medical equipment, and more. While a self directed IRA can invest in traditional assets such as stock, bonds and mutual funds, it is typically used to invest in alternative investments. For further information about what a self directed IRA is, please read the following post about self-directed retirement accounts

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