March 19, 2018

The Wall Street bull market just celebrated its ninth birthday, but 2018 hasn’t exactly followed the blueprint of this past near-decade. Per, the projected size and scope of interest rate increases by the Federal Reserve; steady increases in bond yields; and shake-ups on Capitol Hill have prompted turbulence in the equity markets. The major stock indexes recovered from the dramatic correction we witnessed in February, but they’re struggling for a clear direction. Meanwhile, the United States Dollar continues to weaken against other world currencies.

Times like these can wreak havoc on a retirement portfolio situated entirely in stocks or mutual funds. Most analysts believe we’re seeing a strange blip in an otherwise strong economy, but when might the next recession hit? If you can see the finish line of your working life but the markets suddenly unwind, you may have to wait years for your assets to re-appreciate before you can retire. Diversification can be a key strategy in mitigating this risk, but which assets provide the most comprehensive hedge against a dismal stock ticker? The answer may lie in the tried and true approach you already know: rental properties.

You already understand the stable and reliable income potential of rental properties, but have you considered incorporating these same methods into a retirement plan? Real estate investors are beginning to understand the lucrative long-term possibilities of supplementing one’s personal rental income with tax-advantaged earnings in a self-directed IRA, 401(k), or health savings account (HSA). The process of adding property to a retirement plan is comparable to that of a personal investment, though IRA earnings offer an intriguing suite of additional benefits:

  • Tax-Deferred or Tax-Free Income – Depending on the account type, rental payments yielded by your retirement plan may only be taxed once the funds are withdrawn. They may not be taxed at all if you execute a qualified Roth IRA distribution. In either case, you may continue to make tax-advantaged contributions while deferring taxes on earnings, allowing you to keep more money in your pocket today as you build a nest egg for tomorrow.
  • You Still Run the Show – Although the IRS requires a certain degree of arm’s length distance between individuals and their retirement assets, self-direction, as the name implies, puts you in the driver’s seat for any investment activities. You can still decide which properties to acquire, qualify your potential tenants, and accept payments per usual. However, if you accept payments on behalf of your IRA, the funds must be immediately returned to the IRA and never commingle with your personal money.
  • Finance if you Need To – Contrary to some misconceptions, an IRA can pursue financing for investments the same way a person can. Utilizing debt leverage with your IRA can boost your purchasing power and help build your real estate portfolio even faster.

The proven viability of rental properties can help secure a profitable future while you make your day-to-day living. As the bulk of retirement holdings remain firmly in the public securities markets, now may be the time to protect yourself from the next financial crisis.

Author Blurb: Clay Malcolm is Chief Business Development Officer at New Direction IRA, Inc., a provider of self-directed retirement plans that hold alternative investments. He provides preliminary and continuing education to anyone interested in real estate as an asset in IRAs, 401(k)s, and HSAs. Mr. Malcolm can be reached at 877-742-1270 (Ext. 113) or  

If you liked this article, subscribe to Rentometer's email newsletter to stay up-to-date on the latest trends in rental housing.