A Survey of Different Real Estate Investment Types for Your Self

Real estate can be a great investment option for individuals who either currently have, or are interested in opening, a self-directed IRA. An IRA with a self-directed custodian such as Quest Trust Company will open up the possibility of investing in all legally authorized asset classes, rather than the limited subset of choices that traditional custodians (such as banks and discount brokers) offer. Along with real estate, an individual can use a self-directed IRA to invest in certain types of precious metals, as well as private equity, debt and mortgage instruments.
Because most of us are at least somewhat familiar with the basics of real estate, if not real estate investing, this is one of the most popular choices for self-directed IRAs. Below is a survey of some of the most popular real estate investment types, as well as some of the pluses and minuses of each.

1.    Single Family Homes
Single-family homes are perhaps one of the easiest ways to begin investing in real estate. You only need to do due diligence on a single structure and property prior to investing, and you only have to worry about repairs and upkeep, as well as finding a tenant, for a single location.
But single-family homes offer no diversification in terms of location or tenants. A single-family home only has one tenant, so if things go poorly with that individual, your investment returns will take a hit. Consider, for example, what would happen to you or your investment returns if your property sits vacant for several months (or more) between tenants.

2.    Multi-Family Housing
Some self-directed IRA investors choose multi-family housing units (which can include duplexes, large single-family homes that have been subdivided into multiple units, or even apartment buildings) in order to gain diversification. When you have a dozen units in your portfolio, for example, your returns are not necessarily impacted significantly when one of the units has a short-term vacancy.
But with multi-family properties you are more likely to need professional assistance with management. Be sure to factor these costs into your pre-investment financial calculations.

3.    Commercial Properties
You can do away with the concerns over residential tenants altogether by using your self- correcting IRA to invest in commercial real estate. Possible commercial real estate investments include office buildings, storefronts, and even undeveloped property that you believe will eventually be suitable for commercial development.
These types of investments can prove lucrative, but they do require a higher level of expertise and knowledge of local market conditions than is generally required for residential investments. Most of us simply don’t have any first-hand experience with commercial properties to have an immediate reaction to the suitability of the potential commercial real estate investment.

4.    Real Estate Investment Trusts and Private Mortgages
Finally, there are other ways to participate in the real estate investing markets without having to hold property directly. You can use your self-directed IRA to invest in real estate investment trusts (essentially an investment vehicle that owns and manages investment properties), or even originate mortgages to private individuals and businesses who wish to finance their purchase of real estate.
Regardless of the type of real estate investment you may select, be sure to understand all of the relevant points with any potential transaction, and that the investment is a good fit for your overall portfolio.

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