Because investing and Watercolor Real Estate go hand and hand I think it’s very important to be informed as possible on how to maximize your investing power. With that in mind I came across this question and answer segment on Smart Money.com that address IRA’s and real estate. Take a look and let me know what you think.
Q. Can an IRA be invested in mortgages or real estate?
—Linda Bruyette, Ellington, Conn
Yes, some real estate (including commercial property, vacation rentals, raw land and mortgage notes) is permitted. At best, real estate provides steady income and long-term appreciation. Usually only special-purpose banks and trust companies offer these investments, as “self-directed IRAs.”
Potential risks are high. “Self dealing” is strictly prohibited—which means you can’t invest in something you or immediate family members use or benefit from. Otherwise your entire IRA balance is treated as a withdrawal and subject to relevant taxes plus a 10 percent penalty if you’re under age 59 1/2. Plus, there’s the liquidity issue: You need a big IRA to handle buying and maintaining property while also keeping a diversified portfolio. And if you need out quickly, you better hope for a robust real estate market. A good real estate mutual fund or exchange-traded fund is a simpler choice.