Naples, Florida, and its luxury lifestyle offers unique opportunities for savvy investors. Among the various strategies available, using a self-directed IRA (SDIRA) to invest in real estate can be a powerful way to grow your wealth. Here’s how it works, what to consider, and how to get started.
What is a Self-Directed IRA and How Do I set one up?
A self-directed IRA is a retirement account that allows for greater control and diversification compared to traditional IRAs. An SDIRA lets you invest in alternative assets like real estate. This flexibility is particularly appealing for those looking to capitalize on high-value investments in a market like Naples.
To start, you must choose a specific custodian or trustee who specializes in SDIRAs. They handle administrative tasks like maintaining records, filing IRS reports, and executing your investment directives. Here are some steps in setting up your SDIRA:
Select a reputable custodian: Look for a custodian with a solid track record, clear fees, and excellent customer service. I can provide several recommendations on a consultation call with you.
Fund your account: You can fund your SDIRA through a rollover from another IRA or 401(k) or by making direct contributions. You must still be mindful of the current contribution limits and tax implications.
Identify investment opportunities: With your SDIRA set up, you can start exploring real estate investments, and my investment business helps identify properties for investors who don’t have the time or expertise to find the best deals.
Pitfalls to Watch Out For
While investing in real estate with an SDIRA has its advantages, there are pitfalls to avoid:
Prohibited transactions: The IRS has strict rules about prohibited transactions. You cannot purchase property for personal use or engage in transactions with disqualified persons, including yourself and certain family members. Your custodian will guide you here.
Unrelated Business Income Tax (UBIT): If your investment is financed with a loan, the income generated may be subject to UBIT, impacting your overall returns. You are also limited to a non-recourse type of loan when buying property inside your SDIRA. Your custodian or I can give you some guidance on potential lenders that qualify.
Liquidity issues: Real estate is less liquid than other investments. Ensure your SDIRA has enough liquid assets to cover ongoing expenses like taxes, maintenance, and custodial fees.
Investment Opportunities
Southwest Florida offers fantastic real estate opportunities for SDIRA investors, and my company can assist you in finding those that match your goals. For those looking to leverage their wealth in the Naples real estate market, a self-directed IRA is a compelling option. Please reach out to Jeff to learn more.
About the Author: Jeff Cody is the Managing Director of NextBridge Home Solutions, a veteran-owned/family-owned investment firm based in Southwest Florida. Jeff buys and helps other investors buy, investment properties in Southwest Florida, Ohio, and Western NY. You can learn more at IBuyHomesInSWFL.com or call/text him at 239.270.1956.
Comments