Chance Gates' Blog

The Pro:

Think about buying a home for $100,000 and collecting $1200 a month or an income of $14,400 per year, you need to deduct expenses such as Taxes and Management fees. Now you hold the property for at least five years or so and capture the appreciation. The original purchase must be cash, no loans. Any upkeep must come from the IRA and all income goes into the IRA. The rate of return could be wonderful.

The Con:

Granted, since prices have fallen (make that “collapsed” in some areas), I think that housing is a more attractive investment today than it was back at the height of the boom. If nothing else, you’re getting the same sticks and bricks at a lower price.

It must be noted that owning real estate within an IRA can be a hassle. Most people don’t have enough dough in their IRA to buy enough properties to diversify properly. (Financing a purchase for an IRA is possible, but complicated.) And since there are limits ($5,000 this year, plus $1,000 if you’re 50 or older) to how much you can contribute to an IRA in any year, you could run into problems if the cost of property maintenance and repairs exceeds the amount of cash you have in your IRA or that you’re allowed to put in.

That said even with incentives designed to spur demand, such as the $8,000 first-time homebuyer credit, it’s still somewhat unclear  how long it will be until we see a sustainable turnaround. And given how the last boom turned out, you have to wonder how robust the upturn will be.

But even setting that issue aside, you still have to deal with the other difficulties  about owning real estate in an IRA. One more thing you might want to consider is that real estate isn’t the most liquid investment around. That could be a problem if you need to raise cash from your IRA in a hurry

All in all, you can get enough of the diversification benefit and return potential that real estate has to offer by investing in REITs or mutual funds that specialize in REITS or other forms of real estate.

Not that it’s not an interesting idea. Just like anything, it probably makes sense for some and could be disastrous for others.  Please when ever thinking about investing in Reno/Sparks real estate talk to your account.