Self Directed IRA Real Estate :: Should You Invest in Commercial or Residential?
Monday, July 14th, 2008It’s no secret… Investing your self directed IRA in real estate can be a great diversifying asset for your IRA portfolio. Returns from your IRA real estate investments can help your IRA and retirement funds to weather downturns in paper assets, e.g. mutual funds and the like. But, if you choose to invest your self directed IRA funds in real estate, should you invest in commercial or residential real estate?
Arguments can be made for each. However, the smart way to determine which sector of the real estate market to invest in depends on several factors. As any savvy real estate investor will tell you, it all depends on your end goal.
Things to Consider When Deciding Whether to Invest in Commercial or Residential Real Estate with a Self Directed IRA
Location: Real estate is all about location, location, location. Most think in terms of residential real estate when referring to location. But, it is just as important in commercial real estate as well. For example, if you’re thinking of investing in a strip mall, location will be important because merchants must have sufficient traffic to be able to make sales.
Economy: Commercial real estate is more closely tied to what a given economy is doing that residential real estate is. If you’re going to invest your self directed IRA funds into commercial real estate, assess the local economy of the targeted region with a long-range view. For example, what are its prospects for recovery/downturn in the next three or five years. Then, you can make your investment accordingly.
Length of Investment: Piggybacking on the last point just above, using your self directed IRA funds to invest in real estate should be done with an eye toward the future. The big payoff in real estate is often received when you buy and hold. So, consider how long you’re willing to stick with a certain investment – and what is the likely payoff over that time.
The bottom line is, using your self directed IRA to invest in real estate is a smart move that can increase your retirement nest egg exponentially. However, as with any investment, it takes research and patience.