Why Real Estate in an IRA?

America is in love with real estate!  Sixty-seven percent of American families now own their own home, a fifty percent increase since 1950. And, why not? Home ownership is a bonafide tax shelter, with mortgage interest and real estate taxes a deduction against income, and liberal forbearance against payment of capital gains tax. Now add to the economics the ever present importance of having a stable home and roots in a community, it would appear that the wisdom of investing in a single family home is unassailable.

Can real estate as an investment class be superior to stocks and financial instruments?  For many, the answer is YES!  Historically, real estate has given a stable investment vehicle that provides both income and appreciation. One of the greatest tools available to real estate investors is government-sponsored retirement plans - like a self-directed real estate IRA.

Very few Americans realize that they have the option to self-direct their IRAs and other retirement plans into real estate. Most investors believe that their only IRA investment options are stocks, bonds and mutual funds. If you are a successful real estate investor looking to diversify your retirement portfolio, the combination of real estate and your IRA can be very powerful. The beauty of a self-directed real estate IRA is that it allows the IRA holder to invest in what they know and understand.

Is real estate more powerful that the investments found in the stock market?  Let's look at the underlying principles which impact the quality of these two competing investment products as they apply to IRAs:

1. The ability to leverage the investment, thereby potentially creating a higher return on invested capital. A self-directed real estate IRA can obtain a mortgage giving it greater buying power; a traditional IRA, held by a bank or brokerage house, likely cannot. 

2. Passive income can be generated via rental real estate. 

3. The stock markets' volatility can be extremely unattractive to more seasoned investors.  Real estate tends to maintain a more predictable price range.

4. Security vs. securities: the stock market offers security; however, the real estate market offers a secured investment. Paper or dirt?  One is tangible, one is not.

For most, the desire to invest their retirement funds into real estate or the stock market simply comes down to their core competencies, their positions supported by personal experience. It may be that a self-directed real estate IRA is right for you.