Having all of your money tied to the stock market can be nerve-racking at times, especially if you or someone you know has experienced losses in the market like the dot-com bubble in 2000 or the financial crisis of 2007-2008.  Whether you have a large nest egg or have only saved a small portion of your hard-earned money, you do not want to lose it in the volatility of the stock market!

Suppose you are looking for a way to tie your hard-earned savings to something more tangible that will not disappear overnight or go bankrupt while still producing income and providing tax advantages. In that case, this article is for you!

In this article, you’ll be introduced to the concept of self-directing your individual retirement account to invest in a proven income-producing asset without penalties.

What is an SDIRA?

A self-directed individual retirement account (SDIRA) is an individual retirement account (IRA) where the investor makes all the investment decisions for the account.

SDIRAs have the same contribution limits as a standard IRA, but the main difference is the asset types that you can own in the account.  For example, standard IRAs contain your typical investments like stocks, bonds, and mutual funds.  Whereas SDIRAs offer you the ability to further your portfolio by allowing you to invest in alternative assets such as tax liens, precious metals, and multifamily real estate investments.

Top 3 Reasons to Invest with an SDIRA

1. Tax Benefits – SDIRAs allow you to grow your investments tax-deferred (Traditional IRA) or tax-free (Roth IRA) until you can withdraw it after age 59 ½.  When you couple this with real estate’s tax advantages, it can completely change your retirement future because you can minimize or even eliminate taxes such as income, capital gains, and dividend taxes!For this reason alone, investing in real estate with an SDIRA is one of the most attractive retirement vehicles an investor can utilize, but keep in mind that you have to follow the Internal Revenue Services’ (IRS) strict rules and regulations or face some serious tax implications.  Specifically, we are referring to Unrelated Business Income Tax or UBIT.  UBIT affects investments that are leveraged or have some kind of debt, which typically applies to real estate.  The good news is that you can avoid UBIT by establishing a Qualified Retirement Plan or QRP.  That is why it is imperative to solicit a financial expert’s help before making any investment with your SDIRA.  They will be able to set you up with a QRP and ensure that you avoid UBIT and start enjoying the other benefits of investing in multifamily real estate with your SDIRA.
2. Opportunity for Higher Returns – SDIRAs give you the freedom to invest outside of the stock market into alternative investments.  This means that you have a higher level of flexibility regarding your risk tolerance and, conversely, the potential for higher returns.  That flexibility allows you to reach a healthy portfolio mix to offset potential changes in the market.
3. Control – As the name suggests, with an SDIRA, you have control of your financial future.  If you know a lot about a particular investment, such as real estate, SDIRAs allow you to get into the driver’s seat of your financial future.  The key is to enlist the help of a trusted accountant or financial expert so that you can make the right financial decisions for your retirement goals.

Why Invest in Multifamily with an SDIRA?

Although there are many ways to invest in real estate, multifamily is widely considered one of the most lucrative and safest asset classes to invest in, which has allowed many individuals to build their retirement portfolios and create generational wealth.

By utilizing an SDIRA to invest in multifamily real estate, you can enjoy the benefits of both active and passive investing (if you do not know the difference, click here).

As described above, with an SDIRA, you control what investments you want to invest in and those you do not.  Essentially, you are acting as an active investor by choosing what asset class to invest in.  However, you can invest passively with a group of operators in a multifamily syndication.  Syndications allow you to enjoy the cash flow, stability, and tax advantages that multifamily real estate has to offer without having to manage the asset actively.

Sounds too good to be true, right?  Check out the article 6 Amazing Reasons You’ll Love Passively Investing in Multifamily to learn more about the benefits of passively investing in multifamily.

How Do I Get Started?

If you are interested in utilizing an SDIRA, the IRS requires that a custodian administers your SDIRA account on your behalf.  There are, however, several reputable companies that can assist you in opening an SDIRA account.

We cannot emphasize this enough; once you have your account set up, it is strongly recommended that you consult a real estate professional such as a real estate attorney or accountant before making investments.  The IRS has strict rules concerning investing in real estate.  Still, once you understand them, you can start enjoying all the benefits listed above by investing in multifamily real estate with your SDIRA.