Using a IRA or retirement account

Individual Retirement Accounts (“IRA”) and 401(k) accounts are primarily designed for investing in stocks and bonds. However, there are ways to use these accounts to invest in real estate. Most IRAs or retirement accounts can be self-directed to invest in real estate - rather than the stock market - and 401(k) accounts can also typically be self-directed when, for example, an employee switches W2 jobs.

Here are some ways you can use an IRA or 401(k) to invest in real estate:

1. Real Estate Syndications or Funds: Real estate funds pool money from investors to buy and manage large commercial properties. You can invest in a real estate fund through your IRA or 401(k) account, which will allow you to own a share of the fund and earn a return on your investment.
   
2. Self-Directed IRA: With a self-directed IRA, you can invest in real estate directly. This means that you can use your IRA funds to invest in a property purchase, and the property will be owned by your IRA. All the expenses related to the property, such as taxes, repairs, and maintenance, must be paid by the IRA. Any income generated by the property must also be deposited back into the IRA.
   
3. Real Estate Investment Trusts (REITs): A REIT is a company that owns or finances income-generating real estate. You can invest in a REIT through your IRA or 401(k) account, which will allow you to earn rental income or capital gains from the investment.
   
4. Real Estate Crowdfunding: Crowdfunding platforms allow investors to pool their funds to invest in real estate projects. You can use your IRA or 401(k) to invest in these projects, which will allow you to earn a return on your investment without owning the property directly.

It's important to note that investing in real estate through an IRA or 401(k) has specific rules and regulations. For example, if you use a self-directed IRA to purchase a property, you cannot use it for personal use, such as a vacation home.

Now is a great time to leverage a retirement account to invest in commercial real estate. Even during a recession, commercial real estate should be producing monthly cash flow. This cash flow is generally a hedge against a recession - and inflation - because as more money is printed, rental rates increase. While many other investments, like stocks for example, fluctuate in value, they do not produce monthly tangible cash to put in your pockets. Conversely, real estate investors are still collecting monthly rent during a recession, and in most cases, locked in with long term fixed rate bank financing.

Furthermore, real estate values, particularly commercial real estate values, are less sensitive to economic volatility than the stock market or other investments. In fact, certain real estate classes, like self-storage and multifamily, outperformed during the Great Recession. Couple this with the forced appreciation that you can implement by increasing income and reducing expenses, thereby making a property more valuable.

To start using your retirement account for real estate, work with a custodian - typically a qualified financial professional that is responsible for switching your retirement accounts to self-directed accounts which are available for real estate use - to ensure that you comply with all the rules and regulations.