Investing in Private REITs with a Self-Directed IRA
A real estate investment trust (REIT) is a company that invests in/owns and usually operates all types of income-producing commercial real estate: multi-family housing/apartment buildings, student housing, retirement and senior communities; warehouse and industrial properties; retail centers, hospitality, and office buildings.
In order to qualify as a (REIT), the company must file with the SEC and meet certain SEC requirements. Although most REITs are publicly traded on stock exchanges (known as public, traded or listed REITs), there are also private REITs; like their stock exchange-traded counterparts, private REITS must register with the SEC and are subject to the same IRS regulations. That includes the requirement to return 90 percent of their taxable income to shareholders annually.
One big difference in public vs. private REITs is that the latter are not as susceptible to demand-driven price volatility as public REITs, whose value fluctuates daily; private REITs are valuated annually.
Why invest in a REIT
- REITs provide access to dividend-based income in the short term, and long-term return on investment as the property grows in value over time.
- Real estate is a popular hedge against inflation/stock market volatility and enables investors to diversify their portfolios.
- REITs require a relatively low minimum investment to get started.
Renters are on the rise—and so is rental property popularity
Multi-family housing represents a large portion of real estate investments, thanks to an increase in the renter population, which has been in growth mode for a few years and continues to rise. There are several reasons for this:
- Baby Boomers are downsizing into amenity-rich luxury rental apartments; the 2015 Census Bureau projected that by 2020, five million Baby Boomers will make an apartment their next residence.
- Millennials are delaying home ownership and looking for smaller domiciles in more urban, denser areas; they value the flexibility of apartment living and are paying off student debt.
- Right behind Millennials is Gen Z, whose members have started entering the rental market.
Investing in private REITs with a self-directed IRA
As you know, a self-directed IRA can include many different types of nontraditional investments, with real estate being the most popular class of alternative assets within these plans.
When your self-directed IRA invests in a private REIT, all income and expenses related to the asset flow in and out of the retirement plan. However, private REITS are not the only type of real estate investment you can include in a self-directed IRA. Other types of real estate investments might allow you to partner your self-directed IRA with another buyer, transact a “fix & flip” and take the profit on the sale of the property, or buy and hold the asset, so the IRA earns tax-advantaged rental income over time.
After you’ve researched a REIT or any other real estate investment you’d like to include in a self-directed retirement plan, it’s time to open and fund your account. At Next Generation we not only provide comprehensive transaction support, we also provide client education about investing in real estate and other alternative assets through a self-directed retirement plan. Of particular importance is understanding prohibited transactions and disqualified persons as defined by the IRS.
If you have questions regarding this strategy, don’t hesitate to contact Next Generation at NewAccounts@NextGenerationTrust.com or call 888.857.8058. Alternatively, you can schedule a complimentary educational session with one of our knowledgeable representatives.