Best Practices for Tracking Your Real Estate Investments

tracking real estate investmentHow well are your stock market investments performing? Even if you don’t know the answer off the top of your head, you could probably calculate a performance measure fairly quickly. Chances are your investment broker has access to online account tools that give you all the information you need. Even if you have other types of investments in your portfolio, you may use investment management software or online service to help you track those investments.

The same holds true for real estate. Like any other investment type, you can only evaluate your real estate investments if you have all the necessary information available – in a form that’s easy to use. Here are some things to consider for tracking your real estate investments. regardless of whether they’re in a self-directed IRA or are one of your taxable investment holdings.

Tracking Your Expenses. Some investment types don’t generate much in the way of current expenses. For example, you probably pay a commission each time you buy or sell a publicly traded stock owned. Beyond that, you might not pay an annual fee to the investment brokerage that handles your account. But simply owning the stock doesn’t cause you to incur additional fees.

Real estate investments, on the other hand, require a broad range of fees, from annual maintenance and upkeep expenses, to hazard (homeowners) insurance, to property management fees for someone to manage your property and find you new tenants whenever necessary. Identify all of the categories of expenses you’re likely to face, and use the tools that best suit your recordkeeping style. This might be a piece of dedicated financial software. or possibly a notebook and pencil.

Tracking Your Taxes. While your expenses for investment real estate may to some extent the variable (for example, you can save on management fees by managing a property yourself), your annual property taxes will be beyond your control. In addition to monitoring and measuring these taxes, you’ll want to set up a system whereby you ensure that you are never to link went in meeting your tax obligations.

Tracking Your Time. Real estate investments also differ from many other investment types in that they require a much more active management style. You might stay on top of your stock and mutual fund investments by regularly reviewing quarterly reports and disclosures, and researching those companies and funds to make sure that your original investment assumptions are still true. But there’s nothing you must actively do in order to maintain your investment positions.

In contrast, investing in real estate will require much more of a “hands-on” approach. For developed properties, this will include finding tenants, maintaining any structures or improvements on the property, and making sure all taxes and other legal obligations with respect to the property are met. Even in the case of undeveloped or speculative properties, you’ll still have to pay taxes, ensure the property and make sure that no problems arise. By tracking your time you can make sure you wouldn’t be better off with outside assistance.

Investing in real estate can be financially rewarding, but it takes more effort than buying stocks or bank CDs, Make sure your record keeping process for real estate investments helps you meet your financial goals.

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

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.

Avoid These Mistakes When Buying Real Estate with a Self-Directed IRA

The self-directed IRA can be an extremely powerful tool for building up your retirement nest egg. With the proper custodian, you’ll be able to invest in assets that many IRA custodians choose not to allow. One of the most popular investments within a self-directed IRA is real estate.

But there are some aspects of buying and holding real estate within an IRA which make the implications of that type of investment significantly different from buying stocks or mutual funds. Individuals who haven’t properly planned ahead can find themselves facing significant financial penalties by virtue of their IRA investments in real estate.

If you want to avoid making this costly mistake, the specialists at Quest Trust Company can help you steer through all the information and help you to make a sound decision. They’ve been helping individuals like you make decisions about their self-directed IRA and invest for their future.

Here are some of the most common mistakes they can help you to avoid.

Not Having Enough Account Assets to Cover Real Estate Carrying Expenses. Holding real estate as an investment involves a number of different expenses. There are annual property taxes that must be paid, property insurance premiums to be paid, monthly assessments (if you hold a residential condominium or co-op), payments to the property manager, upkeep and repairs, as well as principal and interest payments if the property is subject to a mortgage.

Unless you have enough additional cash or liquid assets within your self-directed IRA to pay all of these expenses, you’ll need to rely on the cash flow that’s generated by the property. You might purchase a property expecting a certain level of cash flow, but what happens if you can’t find a tenant and the property sits vacant for a few months, or you have a significant unexpected expense related to the property? Unless you have enough additional cash in your account, you might have to make additional contributions to your account that could threaten its tax advantaged status, and potentially result in a taxable distribution, plus the possibility of additional penalties.

Personal Use of Real Estate Held by IRA. You are prohibited from any personal use or immediate benefit of any asset held by your IRA, including real estate. So while it’s legally permissible to buy a property now that you plan to eventually use as a retirement home, you cannot occupy or use that property before retirement, even for a single day or weekend. There can be no personal use of any real estate held by an IRA before you retire.

Not Taking Into Account Future Taxes. Once you retire, if you take possession of a piece of property held by your IRA, you may owe taxes on that distribution. If your self-directed IRA is set up as a Roth IRA, then you won’t owe anything (since you contributed after-tax dollars to the account, and distributions from a Roth IRA are tax free), but you may be hit with a sizable tax bill if your self-directed IRA is formed as a traditional IRA (rather than a Roth). Be sure to take any future tax liabilities into account when considering a real estate purchase within your self-directed IRA.

Provided that you understand all of the implications of holding real estate within a self-directed IRA, doing so may help you build a significant retirement nest egg, or even help you retire into your dream home. Contact Quest Trust Company today at 800-320-5950 for a free consultation and find out how you can avoid mistakes with your self-directed IRA that will affect your financial future.