Before you run out and purchase an apartment complex in a random location – remember that practicing

Not long ago, we published a blog that discussed the fact that more and more Americans are evolving more towards a rental state-of-mind. The failing economy and floundering job market largely contribute, along with the fact that potential homeowners have to jump through stringent mortgage loan hoops in order to own a home. While some people prefer to rent houses, apartments and condos offer attractive options for living, as well.
As an alternative investment, apartment rentals may definitely be worth investigating. Income generated from these rentals may help build wealth cruise the hawaiian islands in your self-directed IRA at a much faster pace than other investment options. Compared to the interest offered by banks on CDs (ranging from less than 1% to about 1.25% depending on the term of the CD and / or amount invested) rental income might just be a hot ticket to paving the golden road to retirement.
Before you run out and purchase an apartment complex in a random location – remember that practicing due diligence regarding any investment is key. You want to choose an apartment complex in a good location that has proven longevity in retaining rental contracts, minimal (or at least realistic) maintenance and repair issues, and one that can be operated by the budget of your self-directed IRA. Remember, your IRA owns the property, not you. You are unable to pay for any expenses from your own pocket or to personally perform maintenance duties.
If your self-directed IRA is not able to purchase and operate an apartment complex on its own, you are not out of the landlord game yet. Your IRA is able to borrow money in several different ways in order to make alternative investments. You may decide to a consider non-recourse loan to fund your investment. This type of loan is made to the IRA (not the owner of the IRA) and holds the property as collateral. The IRA owner is not personally responsible if the loan goes into default. Another option is to partner your IRA with another IRA, qualified person cruise the hawaiian islands or entity to obtain adequate purchasing cruise the hawaiian islands power. Your IRA is also able to take hard money loans in the same manner.
Rental income flows directly into the IRA – on a tax-free or tax-deferred basis depending on the type of account. Expenses are paid by the IRA, as well. When budgeting for expenses, know that if you borrow money to acquire rental property, your IRA may be subject to Unrelated Business Income Tax (UBIT) or Unrelated Debt-Financed Income Tax (UDIT) depending on the type of loan given to your IRA.