Is Real Estate a Wise
IRA Investment?
IRA Investment?
Question: I understand that real estate can be bought and sold as an investment holding within an IRA portfolio, much the same as stocks, bonds or mutual funds, as long as the property is under control of an authorized trustee. Would it make sense, then, to purchase residential property in a "sunshine" state that would in 3 to 5 years be intended for my retirement relocation? The presumption here is that the property could be rented to offset carrying costs while presenting opportunity for appreciated value. What are the pitfalls to this scenario and how do I find a trustee, if this is a viable strategy?
Q&A: Do Major Home Renovations Pay Off at Resale?
Answer: An IRA is not usually a good place to hold real estate. As you mentioned, the property must be an investment, you can't be living in it. Secondly, you would probably need to pay cash for the property--debt financed income is generally not allowed in an IRA. Third, you as an individual would not be able to benefit from any tax shelter that the property would offer, since it would be held by the IRA. And finally, finding a trustee to handle all this for you (including the not insignificant problems of management) is like looking for a needle in a haystack. I would stick with stocks and bonds in an IRA. It's simpler and probably will work better for you in the long run.
Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Buy Your First Home," (Dearborn, 2000).
Submit your question about residential real-estate and home-improvement issues to homes.wsj.com.
Eugene, Portage, Mich.
Email your comments to rjeditor@dowjones.com.