Let’s be honest, getting older is not fun. None of us is looking forward to it as it comes with a lot of unpredictable circumstances. Your body becomes more fragile and susceptible to illnesses so having a secure retirement fund is something everybody is looking forward to. However, more and more retirement savers are realizing that traditional investments such as stocks and bonds are not the only option anymore.
Self-directed IRA is opening many more opportunities and people are now able to invest in things such as real estate, precious metals, and private placements, among other things. Still. these investments are also coming with a certain percentage of risk and you need to be aware of some very important things before you make this decision.
Let’s take a look at the information each retirement saver needs to know.
What’s a self-directed IRA?
As already explained, a self-directed IRA plan is more flexible compared to the traditional one and allows you to expand your investment options. However, before you make a final decision, you need to cover the basics and find the industry you feel secure investing in. As a beginner in this field, make sure you cover all the important details and gather as much information as possible. After all, there is still a risk that your investment fails.
Aside from investment options, a self-directed IRA also gives you a chance to manage your investments on your own. This is the key characteristic of this retirement plan that makes it stand out from the traditional and Roth IRAs. Still, just like with any business venture, make sure you understand all the pros and cons. This is an investment into your future so take careful steps and ensure you are financially taken care of as a senior.
Investing in Real Estate
One of the most popular forms of investment is real estate. You have at your disposal different types of properties to finance and in different ways. For example, you don’t have to buy a house or apartment, you can use your IRA fund to get a loan. However, the money in your retirement fund can also be used to pay for the full price of the property. This is completely up to you. There is also the possibility of partnering with someone to make a financial move like this. You can even establish LLC aka limited liability company with the money in your IRA fund and use it to buy real estate.
Although popular, real estate investments are not without their risks. Before you commit to buying a property make sure you can actually get the money you used for the purchase back. You need to look into many things such as the average income of a household located in the area you’re planning to invest in. Be aware that in the case of economic downfall, the real estate market always takes a hit. To avoid something like this, purchasing something in a more urban area is generally a good move as they are more resilient to these types of events.
Private Financing
Another way to invest your money and get a hefty refund is by deciding to land it to the people in need. This is called a promissory note and can be a very lucrative move. The deal depends completely on you and the person or an entity you’re borrowing money to. You have the flexibility to agree on the amount you’re going to loan them as well as on the size and frequency of payments.
There are two types of promissory notes. Security notes are backed by collateral, usually real estate. This means that in the case a borrower fails to fulfill the terms of your agreement, you have the right to take the property. Unsecured notes represent a riskier approach to the same type of loan given the fact that they are not backed by collateral. So, if the borrower is not able to keep up with the payments, you will not have a secure way to get your investment back.
Alternative IRA Investment Options
Aside from the options mentioned above, which are considered more traditional, you can also put your money into something a bit more unusual. With a self-directed IRA, you can invest in the energy market, tax lien certificates, and life settlements, among other things. So, go through all possible options, determine the risks, and make a decision which you feel the most comfortable with.
If you’re looking for a way to enhance your retirement fund, the self-directed IRA might just be the way to do it. With so many investment options available to you through this plan, you have a real chance to create a stable and secure future.
