Self-directed IRAs offer investors the ability to choose how they want to diversify their retirement plan in ways they see fit. These accounts give individuals a hands-on approach in choosing their own assets from an incredibly vast number of alternative investments. Foreign real estate holdings are a popular example of assets permissible in self-directed retirement plans.
In today’s volatile market, stocks and foreign exchange may not be the best choices to sock all of your retirement funds into. Traditionally, financial advisors encourage diversity across different options to minimize the risk of “losing it all” on one investment. Those who self-direct their plans achieve greater opportunity to create a diverse portfolio by adding assets like real estate that they feel are a more secure method to earn retirement income.
Foreign real estate offers many choices to diversify your assets and earn retirement income: you can purchase developed or undeveloped property; you can invest in areas that are up-and-coming or in core markets that offer steadfast, desirable locations. You can use rental property (residential or commercial) to provide consistent monthly gains. You can also purchase houses and other buildings with the intent to keep and grow in value—or rehab and sell them to make a quick profit.
The purpose of using retirement funds to invest in this manner is that all income made off the investment, from rentals to reselling, goes directly into the retirement account on a tax-sheltered basis. On the same note, all expenses related to the asset must be paid by funds from the IRA. It is critical to make sure your account maintains the capital to do so, or you could find yourself in a bind if unexpected expenses arise. Also, bear in mind that as with any asset owned by your IRA, you are unable to enjoy current benefits of those investments. For example, you can’t maintain residence or personally use the real estate owned by your IRA. However, you will benefit from the income-earning potential of these assets when you retire.
One particular point we want to make if you choose foreign land: you must fully educate yourself on the rules and regulations wherever you invest, as investing laws and guidelines vary from country to country. You also need to perform the usual due diligence as you would with any other option and work with professionals (realtors, attorneys, etc.) in those countries who are fully versed in foreign acquisitions to ensure your investments are in compliance with their requirements.
An example of how investors hope to earn income on foreign investments for long-term earning potential lies in Europe, specifically Britain, since their recent vote to leave the European Union. An article published by Independent.co.uk, reports that since the Brexit vote, the value of the pound has dropped to a 30-year low and overseas investors are said to be quickly moving in to acquire property in London, as domestic buyers bail. Although the long-term, global impact of Brexit remain to be seen the initial decline combined with a weaker pound, may provide a great opportunity to invest abroad in some of these markets at a discounted price.
The current global economy is reported to have benefited American property investors by strengthening the value of property in the U.S. According to an article published on Forbes.com, based on a survey performed by Colliers International, 94 percent of survey respondents planning to invest in more real estate in 2016 will increase investments in U.S. properties.
In fact, an article published by biznow.com states: 2015 was the year of the foreign investor, but data from the Association of Foreign Investors in Real Estate (AFIRE) says foreign buyers plan to throw even more cash into US real estate in 2016. 64% of the AFIRE members surveyed plan to increase U.S. property investments—around half of the group’s 200 members were surveyed. AFIRE CEO Jim Fetgatter says China’s slowdown, Brazil’s recession and Europe’s immigration crisis have pushed members—who hold around $2 trillion in property globally—to the U.S. as “the safest place for them to go,” Bloomberg reports.
It is clear that despite the current volatile market, international property investments, whether in the U.S. or abroad, are being considered as a potential retirement-earning cash cows among savvy investors. While no investment carries a sure-fire guarantee, using real estate investments in your self-directed IRA can provide that diversity in your portfolio to offset the roller coaster rides that other markets often present.