As an investor, you can create a diverse portfolio with a self-directed IRA with passive, fast-growing assets ready for long-term account growth. With a traditional IRA, you're limited to what you can invest; with a self-directed IRA, you have a much larger set of assets that you can take advantage of. Investors with a good understanding of investments in different segments can earn higher returns with self-directed IRAs than with traditional IRAs. When real estate is in a self-directed IRA, earnings will be counted as income and depreciation will not be taken into account.
If you're looking for more investment options for retirement and control than your current IRA offers, a self-directed IRA might be what you need. One of the drawbacks of investing in real estate with a self-directed IRA is the need to comply with ERISA. When considering the pros and cons of investing in real estate with a self-directed IRA, the tax landscape is more complicated. On the other hand, a self-directed IRA with checkbook control has a higher setup fee, but has no transaction fees.
For the specific property you are considering, determine the expected returns with the tax advantages of a self-directed IRA and the expected benefits of buying property that is not within a self-directed IRA. There's no doubt that commissions can be a scam when it comes to placing real estate in a self-directed IRA, but they don't have to be. When looking at the pros and cons of investing in real estate with a self-directed IRA, there are plenty of reasons to move forward. There are many articles about the pros and cons of using a self-directed IRA to invest in real estate.
The pros and cons of investing in real estate with a self-directed IRA can be persuasive in either direction. But if you know the real estate industry, why wouldn't you want to capitalize on an investment you believe in with a real estate IRA? Why limit yourself to ETFs and stocks that may or may not perform well in the long term? asks Daniel Hanlon, senior vice president of Midland Trust, a custodian that offers self-managed IRAs.