We’ve had many clients asking about
commercial real estate investing. Should they? How could they? And where would they even start?
Most recently, we had a client ask, “Can you send me some info about using IRA funds to invest in Commercial Real Estate?” Well, here’s our answer!
As always, we are NOT in the business of giving financial or real estate investing recommendations on the internet. We are only pointing others who may have the same questions in a direction. If this is the “right direction” for you, that is up to YOU and your financial advisor.
That said, there are several ways to invest in commercial real estate. However, the options are varying in both risk and complexity.
There is a second layer of complexity when you are using an IRA to make an investment. The IRA Self Dealing/ Prohibited Transactions rules needs to be factored in. These rules really tick people off. In our understanding, the taxing authorities strictly enforces these rules. Investors need to be very attentive to the risks of violating the Self-Dealing/Prohibited Transactions rules.
Let’s look over a few options for buying real estate.
- The “easiest” way to buy any sort of real estate, is to buy a financial instrument. Some options are funds, stocks, bonds, or other financial instruments that hold commercial real estate. You can purchase most of these options via an investment account. Funds that also hold real estate assets as a portion of the holdings are out there. These funds can be a convenient and balanced way to go because of the relative ease of purchase, cost, simplicity, and transparency.
- Connecting with a custodian who invests directly into real estate uning an IRA or other investment asset is a possible move. It’s a move that will move you out on the complexity/risk scale. For example, there are a bunch of crowdfunding platforms out there that do just that. Unfortunately, significant financial issues have been plaguing some of these previously popular tools for real estate investing. Many people consider using this sort of custodian to be moving out on the risk and complexity scale, for this reason.
- Finally, another method some use is to set up a self-directed IRA using a custodian as a third-party administrator. This is quite likely as far out on the risk scale as one can get. Using this route, the investor is giving up many rights and privileges of owning real estate. Some of the best real estate investing benefits are lost in this scenario.
In conclusion, we’re sure there are several other options we have not mentioned. Hopefully this is a good starting place. There are many ways to use an IRA to make these investments, you just need to choose if it’s right for you. You then need to get solid advice on which method fits your goals and objectives. You can also check out The Street to see their detailed list ideas.