4 Reasons to Invest in Duplexes and Triplexes in a Self-Directed IRA

Multifamily real estate investments can provide a considerable income, especially if the property is high value, such as a large condominium complex in a posh vacation location. The benefits of investing in large and lucrative multifamily properties are significant. But, if you prefer to invest on your own or if you’d rather start out with less funds and/or a smaller piece of property, investing in duplexes and triplexes is worth considering. These assets offer the same benefits as larger properties, but on a smaller scale.

Why Do People Invest in Duplexes and Triplexes?

Investing in duplexes and triplexes provides the potential to earn a steady monthly income. you have the potential to earn a steady new multifamily homesmonthly income. And, if you don’t have partners, that income is all yours. Of course, so are the expenses. But, if you choose your assets wisely and keep the buildings and grounds in good shape, you can capitalize on the potential property appreciation over time. So, if you decide to sell in the future, you can score additional gains on your investment.

The same is true if you invest in duplexes and triplexes in your IRA.

This strategy can help you grow tax-advantaged income for retirement. You don’t take a withdrawal of funds to invest, either. Instead, your self-directed IRA purchases the asset, and it becomes a holding owned by the account. All income and expenses are received and paid out of your retirement plan. Tax on the income is deferred until you take distributions in retirement if you use a traditional IRA. Or, you have the chance to avoid taxes altogether if you invest with a Roth IRA.

How to Invest with Your IRA

As the IRA owner, you are responsible for performing all due diligence on the property. This includes making sure it’s in a desirable location and will attract tenants who can pay the rent you require.

Once you identify the investment property, the process is simple and straightforward:

    • The property is purchased by your IRA and is titled in the name of your IRA.
    • All income flows directly into your retirement plan on a tax-sheltered basis.
    • If you sell the property, capital gains are also tax-sheltered within the IRA.

4 Reasons to Invest in Duplexes and Triplexes

1. Earn consistent monthly income.

You’ll receive monthly income from rent payments. This income is deposited directly into your IRA, which creates more capital in your account to invest in additional real estate.

2. Make more income than on a single-family rental.

This depends on the size and location of your investment property, of course. But you have the potential to earn more income when you rent two or three units than you do with one.

3. You can survive a vacancy.

This is one advantage multifamily homes have over single-family rentals. When you invest in duplexes and triplexes, you can afford to have a vacant unit every now and then. You still have other units that generate income instead of no income at all until you find another tenant. So, unlike losing all income on a single-family home if your tenant moves out, you’ll still earn half or two-thirds of your income if you lose one tenant in a duplex or triplex.

4. Use a unit as an Airbnb or seasonal rental.

You have more options with multifamily homes. You can choose to use one or all units as an Airbnb. This is a clever strategy, especially if your investment property is in a vacation location. You might earn more income renting the units out on a short-term basis. Or you could choose to utilize one unit as an Airbnb and the other units as long-term leases. The point is, you have choices that can earn the income you want to achieve.

Are Multifamily Properties the Right Fit for You?

If you have little or no experience with multifamily investments, these smaller properties are a great learning tool. It is much easier to try your hand at multifamily assets in your IRA with smaller buildings than it is to start out with expansive apartments or condominium complexes. While personally managing and/or performing work on property in your IRA are prohibited transactions, you do oversee every aspect of the property. So, you learn what’s involved, how much it costs, and how much time it takes. You’ll get a good idea of the benefits and risks, and how much income potential there is with these types of investment properties.

This article provides the basics of how to invest in duplexes and triplexes with your IRA. Please contact Advanta IRA for more details. We are happy to talk with you, answer questions, and help you understand the benefits of self-directed retirement plans that hold real estate.

Additional reading about self-directed accounts and alternative assets:

Roth IRAs vs. Traditional IRAs: A Comparison of the Benefits and the Differences

FAQs about How a Checkbook Control IRA Works

Why Consider a Self-Directed Health Savings Account?

This article was initially published in April of 2020 and has been updated for accuracy.

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About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.