Alternative Real Estate Investments

Recently I did an interview with a journalist on the habits of successful real estate investors. These were some difficult questions that she asked and I have to admit that I really thought through the answers. We talked a lot about retirement and how to use alternative investment vehicles to achieve wealth.

Most investors use an IRA to invest in stocks, bonds, or mutual funds. Most financial advisor brokerages only allow people to use an IRA to invest in stocks, bonds, mutual funds, or CDs. But, there are a few custodians that allow you to use a self-directed IRA to invest in alternative assets, such as real estate.

 

Now don’t think that you can just call up your financial advisor or someone at Fidelity Investments to do this. There are only a few retirement custodians in the US that allow investors to do these self-directed IRAs.

The benefit is that self-directed IRAs offer great tax advantages to investors. They can be used to invest in multiple forms of real estate, such as: rental properties, house flips, commercial properties, REITs, and more.

If you’re already investing in stocks or mutual funds, then having a self-directed IRA for your real estate investments can be a great addition to your portfolio.   

Here are some of the topics that we discussed in this Q&A session:

Should investors focus on a niche or a variety of investments?

It’s really a personal preference. There are hundreds of ways to invest in real estate. Some investors prefer wholesaling properties. Others like the capital gains from flipping properties or the cash flow from rental properties.

Some landlords prefer single family houses and others might like to invest in apartment buildings or commercial buildings.  Most investors seem to start out with either wholesaling properties or getting a rental property. 
  

What risks are involved with being a real estate investor?

Buying a property is one of the biggest investments that most people make. So there’s always risk involved with financial matters.  A landlord that does not have reserves for when a tenant moves out or when a major repair is needed can lose money too. If a tenant moves out or stops paying rent, then the landlord is still responsible for the monthly mortgage payment (if they have one).

A house flipper that does not budget properly for the amount of repairs needed can easily lose a lot of money.   It's important to use a budget repair checklist.  If you need one, then check out our budget analyzer below.

Home Repair Checklist & Budget Analyzer
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"This saves me time trying to figure out the repair costs."
-- Jennifer S., Hey Rich Girl Member

Is it easy to create wealth by investing in real estate?  What challenges are there?

If it were easy, then everyone would be doing it.  Many individuals have a difficult time getting a mortgage.   This could be due to anything from credit issues to having too many properties that are already mortgaged.  That is why alternative vehicles, such as self-directed IRAs with checkbook control can be extremely helpful.

With a self-directed IRA, a person can invest in real estate using their retirement account.  Also, house flippers have to pay a lot of taxes on the capital gains. A self-directed IRA can help to defer those taxes.   
  

What do you need to know to succeed in this industry?

A basic concept of being able to assess a property for repairs when buying it.  The investor should still use a home inspector or contractor, but it is helpful to know ahead of time before paying for their services.  The house flipper will want to pull comps to see what other properties in the neighborhood are selling for.

The landlord would want to find the comps on what similar properties are renting for. A person rehabbing a property will want to know what the after-repair value is.  This will help determine their budget so that they do not go over it.

People buying rental properties should manage the properties themselves for at least the first year before deciding to get a property manager. This way the investor understands how the process works.
 
  

  Welcome to Hey Rich Girl!

Hey girl!  I'm Cynthia Cuccuini, a self taught real estate entrepreneur.  I've been flipping houses, landlording (Is that even a word)? and designing homes for over 10 years.  Come along the journey as I educate entrepreneurs how to invest in real estate.

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