I’ve written a lot about real estate properties and the various strategies involved with these types of investments. For example, the buy-to-rent strategy works well for those seeking a steady influx of income into their IRAs, whereas the “flipping” strategy is usually better for investors looking to capitalize on current depressed home prices and reap the potential sales profits later on down the road. Another type of real estate strategy that has been popular is the purchase of timberland and farmland within an IRA. According the WSJ, high-net-worth investors are now seeking out these investments as a way to diversify portfolios, hedge against inflation and produce steady income. Like most alternatives, farmland and timberland can be compelling diversifiers for an IRA account. For example, the value of land will generally rise with an uptick in the national economy and is not historically correlated with traditional equity instruments like publicly traded common stock. Furthermore, according to an index compiled by the National Council of Real Estate Investment Fiduciaries, farmland returned 20.9% in combined appreciation and income last year, and the 20-year average appreciation for this type of land is around 12.5%. And since tangible assets like farmland and timberland can maintain value even as prices rise, these options can also act as a hedge against inflation. Another benefit to owning “working” farmland or timberland in an IRA is the steady stream of income that may be paid to the account on a regular basis. For example, farmers growing crops pay rent to the account owner for use of the land. Individuals or companies that are in the timber business will lease the land in order to harvest trees for paper, furniture, and more, all while paying rents and/or a portion of the profits to the landowner. Rent payments from tenants are paid directly to the IRA, where they grow tax-deferred until the account owner starts taking withdrawals upon retirement. Holding these assets in an IRA can be both a hedge against volatility and inflation, while also providing steady income returns that will grow tax-deferred in an IRA account. However, it’s important to note that, like many alternative investments, these assets also tend to be less liquid – so make sure they line up with your investment time horizon. About the Author: If you have a question about investing in real estate using a self-directed IRA, PENSCO Relationship Manager Michael Howe should be your first phone call. Since 2010, Michael has answered every question imaginable about self-directed IRA transactions, ranging from the simple to the very complex. His prior experience as a document processor/reviewer at PENSCO prepared him well, as he had to learn the subtle nuances of each alternative investment. But it’s his personal interest in real estate – and the fact that he spends most of his free time reading about the subject and attending real estate/mortgage conferences – that makes him a true expert.
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