Why are Multifamily Real Estate Investments Popular in IRAs?

There are many ways to invest in real estate. But, one of the most popular types we see people invest in is multifamily real estate. You can invest in multifamily real estate with your own cash and personal investing funds. But, our clients acquire real estate as assets in their self-directed IRAs to build retirement wealth. The returns have the potential to be quite lucrative when you invest in the right property, have steady tenants, great amenities, and eye-catching curb appeal.

Even when the economy is uncertain, there are opportunities to consider. After all, people always need a place to live.

Multifamily investments include:

Top 5 Reasons Our Clients Choose Multifamily Real Estate for Their IRAs

1. Earn tax-sheltered income for retirement

Self-directed IRAs allow account owners to invest in alternative assets—and they get to choose which investments to make. And, when you invest in real estate with your IRA, all of the income you make, including capital gains from a property’s sale, is directed straight into the IRA. If you invest with a traditional IRA, that income is tax deferred and you’ll pay it on distributions when you retire. Roth IRAs earn tax-free income. This is a favorite plan for those who are eligible because if you meet the criteria, your distributions in retirement are not taxed. There are also other self-directed plans you can use to grow income in your retirement portfolio.

2. Greater cash flow

More rentals mean more cash coming in on a monthly basis. All income is deposited directly into your IRA on a tax-sheltered basis, which provides two benefits: more cash to reinvest and funds to cover any maintenance issues. Additionally, multifamily investments provide multiple streams of income, not just one as you’d have with single family rentals. If some units are vacant for a while, you have others that continue to generate that cash flow.

If you continually upgrade the property—whether you add a workout gym, individual storage rooms for each unit, or a safe laundromat area—you’re more apt to attract tenants for the long haul.

3. No fear of vacancies

How nice would it be to not worry about a vacancy? If you lose a renter in a single residence, any monthly income comes to a screeching halt until you’re able to rent it out again. But, depending on the location and desirability of your multifamily property, empty units tend to fill up quickly. Everyone needs somewhere to live, and many people either can’t afford a house or prefer multifamily establishment living. Plus, if you have multiple renters, you still have income rolling in, which is an excellent place to be.

4. Convenient to maintain

You don’t have to drive all around town to check on different properties—your multifamily property is all under one roof at one location. And, while you may have multiple individual units to maintain with separate issues to contend with (like leaky sinks), it’s much easier to keep an eye on one building as a whole than it is multiple properties.

You’ve got one building with one roof sitting on one property that may or may not require landscape management! One location dramatically cuts the time it takes to maintain your investment and can actually be less expensive to maintain, all things considered.

5. More bang for your buck

When you sell a single-family home to another investor or individual, that price is based on the value of the property and structure on it. Multifamily real estate takes into account the profits the property is generating, as well. And, more units equal more income! So, depending on the number of tenants you have, if your property is in a good location and has been well maintained, you could net a pretty nice return when you sell.

These are all things to bear in mind whether you invest with personal cash for immediate income or with your IRA funds to grow income for retirement. Of course, there are considerations—such as more people to deal with, multiple possibilities for plumbing issues, leaks, etc. If you invest with your IRA, you can’t personally manage or work on the property. But you hire the professionals to do it and oversee their work. If you want less personal involvement, investing passively in a syndication may be the perfect strategy for you. Either way, multifamily real estate is definitely worth looking into and can be the right fit for experienced or new investors.

If you have questions about this article or want to know more about how multifamily property and other real estate investments work in a self-directed IRA, please contact us at 800.425.0653 or email [email protected].

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About Scott Maurer

Scott is an attorney and a graduate of the University of Florida Law School. Scott started his career with Advanta IRA in 2006. His experience with various investment types and their unique processes makes him an invaluable asset. Scott holds the designation of Certified IRA Services Professional (CISP) and leads engaging seminars and webinars that educate the public on the intricacies of self-directed IRAs.