Investing in Commercial Real Estate Using Self-Directed IRA


Key Takeaways

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There’s no doubt that commercial real estate is a great option for people looking to diversify their investment portfolios. Whether you are thinking about office buildings or retail property, you might evaluate various funding options so that you can get in on the action with real estate investing. One solution is commercial real estate using self-directed IRA, which will give you a simple solution to come up with the cash that is needed.

Commercial Real Estate: Broad Investing Opportunities

The topic of commercial real estate investing can cover a wide range of properties: everything from an undeveloped lot to a grocery store or large office building. Putting investment funds into these properties can be beneficial to create passive income through the rental money that is collected. Additionally, the value of the property can increase over time, helping to build your assets with a great long-term financial strategy.

Many people agree that the stock market volatility is making them nervous. Overall, the stock market has been in a growth pattern in recent years. But things can change in an instant, leaving investors frustrated due to decreased stock values and other concerns. Historically, there have been times when the stock market plunged, and investors were left to clean up the pieces.

Instead of leaving your money to the ever-changing climate in the stock market, it is easy to see why real estate investing can be a better solution. When investment funds are placed in a building or lot, there is a physical asset that remains even if market prices change. The long-term holdings can result in great financial gains in the future. The most important decision that you can make is choosing one or more commercial real estate properties that offer promising results for the future.

In fact, retirement investors are looking for diversification in IRA holdings, and commercial real estate is one way that allocations are being directed. Some people with self-directed IRAs turn to residential real estate investments, not realizing the potential benefits that could be realized in commercial investments. Common investment options include apartment buildings, industrial complexes, shopping centers, warehouses, and more.


Advantages of Commercial Real Estate Investing

As you learn more about the benefits that are available, it is easy to see why you might be considering commercial real estate using self-directed IRA. These are some of the most common benefits that draw investors to these opportunities:

  • Tax Advantages: If you pull retirement money and use it for personal expenses, then you need to consider the capital gains taxes that might be due. Certain types of retirement accounts are subject to IRS calculations for capital gains when the money is withdrawn. These taxes can result in a heavy financial burden that cuts into the profits available in your retirement account. An alternative is to invest the retirement funds into real estate, allowing the capital gains to be deferred until distributions are received in the future. The tax burden varies depending on the type of IRA that you have and the investment properties that you are considering. So, the best solution is to talk to a financial professional for personal recommendations.
  • Funding Options: Do you have enough money for commercial real estate investing with self-directed IRA? Even though you have a hefty IRA account, it might not be enough to cover the costs that are needed for a big commercial real estate investment. Instead of assuming that you need to come up with the funding by yourself, consider other alternatives such as crowdfunding or partnership solutions that are offered for real estate investments.
  • Financial and Management Support: Teaming up with professionals for a commercial real estate investment means that you can tap into the expertise of those who have been in the industry for years. As a new investor, it can be overwhelming to learn the do’s and don’ts of commercial real estate using self-directed IRA. Instead of navigating the industry without experience, find an investment opportunity where you can work with a manager or investment team that will assist with every aspect of the investments. For example, the right investment firm will help with the selection, acquisition, and management of the real estate property.
  • High Value, Minimal Risk: When commercial real estate investing is done right, it is possible to minimize the potential risk for your investment. Be cautious when you are moving forward with commercial real estate using self-directed IRA. Rest assured knowing that an expert investment firm can offset risk through crowdfunding and a diverse portfolio with commercial properties. Minimizing risk doesn’t mean that profits are affected negatively. Instead, there is a great opportunity for long-term ROI (Return On Investment) when you choose the right commercial real estate investment opportunities.

Typically, a commercial real estate investment has a high concentrated risk when a large sum of money is invested in one building. Many investors don’t have enough cash to purchase multiple properties, which leaves them exposed in the one investment. Luckily, there is a way around this by partnering with other investors and choosing multiple properties for the investments.

A good commercial real estate team understands the industry and can make proven recommendations based on the strategies that are working in the current economic climate. A trained and experienced investment manager can identify the properties with the highest potential for return. These private investments offer great opportunities for investors since there are no shareholders that need to be considered in the strategy and profit margins.

What is a Self-Directed IRA?

There are various Individual Retirement Account (IRA) vehicles that can be used for financial planning, and the self-directed IRA is one of the least understood options. The truth is that a self-directed IRA is an opportunity which isn’t available from other types of accounts.

If you are looking at options for commercial real estate investments with self-directed IRA, it means that you (the investor) will have responsibility and control over the investments that are held in your account. In comparison, other IRA accounts have financial institutions that manage and limit the investment options that are offered. Most IRA accounts have holdings in mutual funds, stocks, and bonds. But a self-directed IRA account opens options for a range of investment vehicles, such as real estate and precious metals.

When you choose a self-directed IRA, it means that you are placing the money with a custodian who handles the investments at your request. This person isn’t responsible for finding specific investments or offering financial advice. So, you are fully responsible for deciding where and how the money should be invested. This option opens up opportunities if you don’t want to stick with the traditional investments.

As you are choosing investment options, it is smart to consider the possibilities that are available through commercial real estate investing. The IRA funds can be placed in a crowdfunding or partnership investment fund. This method allows you to tap into the services offered by the custodian while leveraging the knowledge and industry expertise from a commercial real estate investing expert.

Pros and Cons of Self-Directed IRAs

If you are an experienced investor and you have a strong understanding of the assets in which you want to invest, then self-directed IRAs might be the perfect solution. This vehicle offers the flexibility and opportunity that can improve margins and returns on your investments. If you don’t know much about the investments and industry, then it is best that you leverage the assistance of someone who can offer advice and support on each decision.

One of the main benefits of commercial real estate using self-directed IRA is the potential for long-term growth. Certain types of assets (which aren’t typically included in traditional IRAs), such as commercial real estate, could give you the tax benefits and long-term financial returns that you are seeking. A lot of money moves through real estate deals each year, and you can be positioned to take advantage of the opportunities that are available.

Your IRA investment capital can be placed in real estate opportunities. Recent changes in the laws have resulted in crowdfunding real estate deals that are professionally vetted and offer great dividends for investors. This direct investment increases the possibility of bigger profits in the future.

Of course, the potential risk is present in all investments. There is never a guarantee of good performance for any type of investment. For example, the responsibility is on you to choose the investments that are made, which could have a negative impact on your wealth if the wrong property is selected. Choosing to participate in commercial real estate using self-directed IRA is only beneficial when you have the right commercial real estate investing team to support your financial strategy.

Self-Directed IRA

Tax Implications of Commercial real estate using self-directed IRA

It’s no surprise that commercial real estate investing can be complex. The laws are constantly changing, and investment opportunities vary depending on the location of the building, the type of investment, economic trends, and more. The most important decision that an investor can make is choosing the right team to support and create the best investment strategy. Having a good investment group gives you the peace of mind knowing that your money is going towards investments with potential.

Make sure that you choose financial professionals and other advisors who have real-world experience with commercial real estate using self-directed IRA. The wrong strategy could cost tens of thousands or hundreds of thousands of dollars in tax burden if something goes wrong. Your investment manager can help you evaluate opportunities that will defer potential tax payments that are due so that you can maximize the long-term financial benefits that are available.

Do you have a traditional IRA or Roth IRA? Keep in mind that the type of IRA will affect the way the taxes are calculated. With a Roth IRA, the retirement fund is created using money that has already been taxed. As a result, the investments aren’t taxable while growing and there are no taxes due when the money is distributed. On the other hand, traditional IRAs are funded using pre-tax money, which means that they are subject to taxation at the time of distribution.

When real estate is purchased with IRAs, there are no specific like-kind or time requirements that need to be met with the purchase to avoid taxes. You can talk to your tax accountant for more information about how the rollover works and the best strategies to minimize the tax burden of the transactions.

Protection and Control of Your Real Estate Funds

One reason why commercial real estate using self-directed IRA might be a good solution is that of the increased measure of protection and control that is available. While every situation is unique, there are many instances where a commercial real estate using self-directed IRA is safer, easier, and less expensive compared to other investment opportunities.

Some investors choose to create a special type of limited liability company (LLC) that is structured to match IRS requirements. This entity is known as an IRA LLC, and it makes it easier to maintain control of the accounts so that investment funds can be used more freely. In this situation, custodian approval is not required whenever a check is written from the fund. Additionally, an extra layer of legal protection is available since the investor is shielded by the company.


Strict Rules for Commercial real estate using self-directed IRA

As with many other aspects of tax laws, the IRS has established strict rules that need to be followed for real estate investments when a Roth IRA or any other type of IRA is used. Investors shouldn’t move forward with the transactions alone. Instead, a consultation should always be completed with someone who offers expertise in tax shielding, commercial real estate, and financial retirement strategy. It can be helpful to seek the opinions of multiple experts, which is why a real estate investing team is a good strategy to use.

You don’t need to face the potential consequences of undertaking real estate investing alone. Looking for the expertise that is needed can go a long way to ensure that your money is going to a property with potential.

There are many moving parts with a self-directed IRA, which is why the advisor needs to understand the most current methodologies that are working in today’s industry. Not only will the right commercial real estate using self-directed IRA investing team offer the support that you need, but education should also be offered, so you understand the way your investment funds are being used. The best solution is to choose an investment firm that offers full transparency for everything: acquisition, management, profit margins, distributions, market trends, and more.

This information should be readily available when you are working with a team that understands the industry. Not only can you contact your investment manager any time you have questions, but you will be first in line when new investment opportunities are available.

Keep in mind that there is a difference between a self-directed IRA advisor and an IRA custodian. By law, the IRA custodian needs to maintain neutrality, which means that they are only allowed to share the firm’s investment policies and IRA regulations. If a firm is holding the traditional IRA funds, then they can’t offer the advice that is needed for the decisions that you are making. Instead, it is better to talk to a self-directed IRA advisor or a commercial real estate investment manager who can help you find the right solutions based on your individual circumstances.

Commercial Real Estate Investment Partners and Crowdfunding

As you are exploring options for commercial real estate using self-directed IRA, don’t overlook the opportunities that are offered through partnerships or crowdfunding solutions. An experienced company will have the experience to know the commercial real estate properties that offer optimal returns. Plus, they can help with the diversification of the investment portfolio and protect to avoid litigation and creditors.

Accurate information about commercial real estate using self-directed IRA, paired with the right investing tools or funds, can be a great way to improve your financial future. A good investment will maximize the retirement cash that is being used, enabling you to enjoy the retirement income that is needed to support your desired lifestyle.

Following IRA regulations and IRS requirements might seem like a burden if you are navigating the industry without support. On the other hand, your stress levels will drop when you have the right team to offer advice, guidance, and support.

Commercial Real Estate IRA

Considerations for Investment in Commercial Real Estate Properties

Whether you are using a strategy that involves commercial real estate using self-directed IRA or another method for real estate investing, a few considerations need to be addressed to increase the likelihood of success with your investment.

Here are a few factors that you need to consider and address before investing in commercial real estate:

  • Property Due Diligence: First, it is important to understand the industry. Then, due diligence is needed to determine the value of the asset and potential dividends that will be available. Never sign your name on a contract until this necessary due diligence has been completed. For example, it is important to look at the property’s claim history, any paperwork or transactions associated with the property, insurance coverage, permits, tenants, the potential of profitability, industry comparisons, and more.
  • Management Expenses and Ongoing Costs: After the commercial property has been acquired, what ongoing costs are expected for the investment? Whether a private investor or the IRA is the owner of the real estate on paper, it is necessary to have a clear picture of the maintenance costs and purchase fees that will need to be covered. At the same time, look at the income (from tenants and collected rent) that will go back to the IRA. When the property is owned by the IRA, then the IRA funds need to be used for all expenses and maintenance costs. So, you need to be sure that the funds are available for future expenses.
  • Tax Deferment: As mentioned earlier in this article, tax deferment options might be available depending on the type of IRA account. In many situations, these deferment strategies need to be implemented as soon as possible to ensure that you can avoid the tax Don’t wait until the last minute to explore taxation details because you could potentially miss out on some of the most important benefits that are available. Instead, enlist the assistance of a knowledgeable tax professional who can help with the asset acquisition and financial planning.

Learning More about Retirement Planning and Investments

What are your questions about retirement planning? It can be a challenge to choose the right investment vehicles to support your financial goals. As you are exploring your options, it is important that you learn about the industry so that you can pick the right solutions based on your financial needs. Information is available online, although you need to be sure that you are finding the details from a trusted resource.

Don’t overlook the benefits of talking to someone who understands the industry and can answer your questions as they arise. It is important that you have a team that you can lean on so that you stay informed during every step of the investment process. The commercial real estate investing industry is changing. More and more investment opportunities are coming available as crowdfunding and partnerships are offered to all types of investors.

If you are considering options for commercial real estate with a self-directed IRA, then First National Realty Partners is here to assist. We have many years of experience and a proven track record of helping our partners with optimal investment opportunities in the industry. When you are ready to learn more, we invite you to contact us so that we can discuss the possibilities that are offered. Our goal is to help you find the perfect real estate investment solutions that work for your financial strategy. Call today to talk to a leading investment team in the industry.

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