We are already well into the summer buying season for homebuyers, and many people are already referring to it as the “summer from hell” for homebuyers.
Mortgage rates are up. New construction of homes has been sluggish, and existing homes are hard to find, leading to a tight inventory. Home prices have soared across the country, increasing 9% in April, the fastest pace since the peak of the housing bubble in June 2006.
Yet where there is demand, there is also opportunity. And one of the best ways to make real estate investments is through a Real Estate IRA. This investment vehicle creates an opportunity to use your knowledge and expertise to build wealth on a tax-deferred or tax-free (if in a Roth IRA) basis.
Through a self-directed IRA, an investor can own physical property in the form of raw land, single family homes, multifamily structures or even commercial property. You can both buy and sell property that is held in a Real Estate IRA. For a purchase, your IRA can obtain a non-recourse loan if additional funds are needed to purchase a property. When selling an IRA-owned property, your IRA can ever seller finance the property and hold the trust deed or promissory note backed by the property.
Where and when to buy
Demand from buyers remains strong, thanks to rising wages, a buoyant economy and demographic changes, creating what real estate data site Zillow describes as “a perfect storm.” And there’s no letting up to the sharp demand for homes until at least 2020, based on forecasts of home prices.
If you’re looking for a long-term property for an investment property, based on forecasts, you’ve got at least another two years of price appreciation before home markets face a correction. After that, it’s anyone’s guess, but on average home prices are expected to return to their long-term trend of around 6.5% annually, not including inflation. If you’re buying within a Real Estate IRA, there’s no reason why you shouldn’t buy now or later, depending on the length of time you expect to hold the property.
Also, home prices have varied widely across the country, from an increase of 26 percent in April in San Jose, CA, for a home worth a median of $1.26 million, to a low of a negative 3% in Delaware. It’s not only the expensive areas that have seen sharp price increases. Cities like Baltimore, Newark and Dayton, Ohio have seen year-over-year price increases of 30% or more.
Flipping houses for the long term
While short-term flipping of houses is generally not recommended as a transaction within a Real Estate IRA, long-term flipping can be a lucrative transaction. For example, if you find a buyer for your property this summer while the housing market is hot for sellers, you could flip that house and later invest it in another property.
In summary, there isn’t good or bad timing when buy a real estate property for the long term, especially within a self-directed IRA. However, using a Real Estate IRA as your investment vehicle gives you a bit more flexibility and presents an exciting opportunity to put your knowledge of the real estate market to work. Like any self-directed IRA, it’s important to have a firm grasp of the type of property or land you plan to invest in and understand the IRA rules and regulations regarding real estate investments. If you have more questions about the advantages of a Real Estate IRA please contact us to find out more.
ABOUT STRATA TRUST COMPANY
When alternative IRA custody is this easy, the possibilities are endless.
Founded in 2008, STRATA Trust Company has built a reputation delivering streamlined and straightforward custody. Our service-driven team has helped thousands of investors and investment professionals unlock opportunities in self-directed retirement accounts across a wide range of alternative investments. Formerly known as Self Directed IRA Services, Inc., STRATA has strategically realigned to support a broad range of investment professional partners in growing their IRA asset base – always with an eye on the future.
With offices in Austin and Waco, Texas, STRATA operates as a Texas-chartered trust company with direct oversight by the Texas Department of Banking. Led by a seasoned team with over 350 years of collective experience, 33,000+ investors empowered and over $1.8 billion in assets under custody, our customers experience a clear difference in our approach to IRA custody.