Deciding When it’s Time to Sell a Real Estate Holding From Your Self-Directed IRA

Estimated reading time: 3 minutes

Sell a Real Estate HoldingEven if you’re a firm believer in the value of a “buy and sell” investing philosophy, you’ll still likely agree that there are times when it’s appropriate to sell an investment from your portfolio. And given the effort and transaction costs that go into real estate investment transactions, it’s important to be confident that you exit from a real estate holding when the time is right. Here are some considerations you’re certain to make when conducting your analysis.

You Need the Liquidity.You may decide that it’s time to sell a particular piece of real estate from your self-directed IRA if you need the liquidity. Unlike other types of investments, most real estate holdings are an “all or nothing” proposition. In other words, whereas you can pare down your investments in a particular stock by selling a portion of your shares, you usually have to sell your entire piece of real estate outright in order to exit the investment.

If your financial situation or your overall investment strategy dictates that you have more cash available in your self-directed IRA, then selling a real estate holding might be the best path towards improved liquidity.

Market Conditions Have Significant Changes. When real estate market conditions change significantly, the best financial decision may be to sell your real estate holdings. For example, this might be because the relevant market for the real estate you hold is no longer strong, and you’d rather have your account funds working for you in a different asset class.

On the other hand, you might believe the real estate market has gotten overheated, and that the market value for a piece of property you hold is significantly in excess of its intrinsic value. This might dictate an immediate liquidation so that you can take advantage of the favorable market conditions.

Your Investment Assumptions Have Changed. When you used your self-directed IRA to make the initial real estate investment, you had a number of assumptions in mind. Perhaps you bought a distressed property in a location that you thought would turn around economically within the next five or 10 years. Or maybe you bought a multi-family unit based on assumptions of the cash flow it would generate for your self-directed IRA. But if you’ve found that your assumptions aren’t holding true, you may determine that it’s best to exit that particular real estate investment and direct your funds elsewhere.

Things are Going According to Plan. Finally, you simply may decide that it’s time to sell a real estate holding from your self-directed IRA because things have gone according to plan. If you initially made the investment looking for a particular amount of capital appreciation, and you’ve now reached that amount, you may choose to follow through on your initial plan to sell.

If you aren’t familiar with some of the administrative steps necessary to purchase or sell real estate within a self-directed IRA, contact Quest Trust Company today.

Check out how Quest Trust Company helps in investment decisions with Self Directed IRA. Click here to know more.

Buying Investment Real Estate in a Different State

Estimated reading time: 3 minutes

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?

Buying Real EstateProperly 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.

Buying Real EstateDon’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.