With a self-directed IRA from a custodian such as Quest Trust Company, you’ll have the freedom to invest in asset types that the bank and brokerage custodians choose not to permit. One of the most popular investment types for self-directed IRAs is real estate.
As your account balance grows, and your investing expertise grows along with it, you may become interested in investing in real estate that’s located in a different part of the country. Here are some tips to consider before you buy any investment real estate in a different state from where you live.
Do Your Homework on Market Conditions
Before making any real estate purchases, you’re likely going to want to research not just the selling prices of similar properties, but the local rental market conditions as well. After all, in most cases you’ll be purchasing residential (or commercial) real estate that you’ll need to rent out. Is demand for rental housing increasing or decreasing? Are local businesses expanding their operations? Is the average residential renter a single professional or a family, and would your potential real estate purchase serve that market?
Properly Evaluate the Property
Buying stocks and bonds for your self-directed IRA is a relatively straightforward process. You can research any potential investment through its SEC filings, as well as the analysis of professional market observers. For public companies, there’s generally no shortage of information available to help you make an investment decision
In contrast, the process of purchasing investment real estate generally requires you to become very familiar with the individual piece of property – and that almost always includes a physical inspection. If it isn’t feasible for you to travel to the property to inspect it yourself, be sure you have a highly trusted expert inspect the property on your behalf.
Plan for Property Management
As opposed to local real estate investments, which you could theoretically manage yourself, you’re probably going to need some level of professional assistance to manage any out-of-state real estate investments you make. This is particularly true for single-family homes, which won’t have an on-site superintendent (like a condominium building might) who can handle routine maintenance.
Don’t Automatically Chase the Lowest Prices
As with other types of investments, sometimes a very low price is a red flag that something’s wrong. Look not only at the purchase price of a particular property, but whether you’ll need to spend more to get that property into a rentable condition. You need to take the complete financial picture into account before you can determine whether a particular property is fairly priced or not.
Understand the Foreclosure Process (if Applicable)
If you’re looking to purchase foreclosed or distressed properties, make sure you fully understand the applicable legal process in the state where the property is located. The differences can sometimes be very different from state to state, so you want to make sure your investing plan fits that process accordingly.
Finally, as with any other real estate purchase, whether for personal or for investment reasons, don’t overextend yourself financially, and be confident that the property fits within your overall financial plan.
Click here to learn more about the Quest Trust Company investment plans.