• Daniel Blue

Benefits of Using a Self-Directed Retirement Account to Invest in Real Estate


There are several benefits when using your Self-Directed Retirement Account to invest in income property, including (1) increased ROI potential, (2) the ability to take control of your financial future, and (3) protect yourself against economic fluctuations.


Benefit 1: Increased ROI potential

The Self-Directed Retirement Account gives you the freedom that you need to invest in alternative assets, which means that you will have an increased level of flexibility regarding the amount of risk that you want to incur, as well as the potential for a higher ROI.


Benefit 2: Take control of your own financial future

As its name suggests, a Self-Directed Retirement Account puts you in charge of your own financial future. A big reason why is that you have more options beyond mutual funds such as real estate investments.


Benefit 3: Protect against economic fluctuations

The stock market can be volatile which is why diversification is key to protecting your wealth. The ability to invest in alternative assets, such as real estate, can help you to create a healthy level of diversification, while simultaneously capitalizing on investment opportunities.


To put these benefits into perspective, imagine that you purchase a home for $100,000 and sell it for $200,000. If this property was owned by your Self-Directed Retirement Account, then all of the profit would go back into your Self-Directed Retirement Account and subsequently be tax deferred.


Now imagine that you own a home and rent it annually to a tenant for $40,000. If the property was owned by your Self-Directed Retirement Account, once again, your rental income would go back into the Self-Directed Retirement Account and thus be tax deferred. The moral of the story is simple: with the help of a Self-Directed Retirement Account you can increase your wealth, while simultaneously enjoying the benefits of tax deferment.


Note: You will eventually have to pay taxes on the tax-deferred income in your Self-Directed Retirement Account when you take cash out. For this reason, many investors choose a Self-Directed Retirement Account, which is similar to a traditional IRA, except for the way it handles taxes. With the Self-Directed Retirement Account, you actually pay your taxes before placing those funds in the Roth account. Any profits made within the Roth can then be taken out tax free when you retire!

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