Home sales rising. Is a new wave of home investors forming?
Existing home sales rise in November and are now 34 percent higher than the mid-2010 low. Low prices and interest rates are drawing some new investors to real estate.
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"By using a self-directed IRA, I can direct my custodian to purchase properties more quickly than if I had to get a mortgage," she says.Skip to next paragraph
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This strategy of investing in residential real estate via self-directed IRAs is gaining steam, says Kevin Kaczmarek, founder and chief executive officer of Capital Blueprints, an asset management and educational firm in Carmel, Ind., that specializes in self-directed IRAs. "It gives people an opportunity to enter a market that might otherwise be financially inaccessible. More people are realizing that residential real estate investments are a good alternative to what they'd traditionally been doing with their retirement accounts. This allows them to diversify their portfolios beyond the traditional investments."
What kind of returns can they expect?
"We're averaging about 9 to 10 percent annual returns from renting the four investment properties we own," says Stacy Bruno Migale, who owns a bakery in Petaluma, Calif. (The return rate is calculated by dividing a house's purchase price by the annual net rental income.) She and her husband, a commercial painting contractor, have had two of their housing investments for some time. Two years ago, they bought a condo for $155,000, which was $160,000 less than the previous owner had paid for the property. Earlier this year, they added a 1,000-square-foot single-family house for $228,000, which was roughly half of the prior owner's purchase price, says Ms. Migale.
Of course, housing investments carry risks. Home prices could easily slide further. Tenants might be in short supply. Unexpected maintenance costs could cut sharply into profits. Also, investors should find out if their property taxes would rise if they rent out their homes and no longer live in them.
Investors who can pay for houses with cash may be in a better competitive position than those who can't. That's because cash buyers often can close a deal faster than those who have to wade through the mortgage-approval process, experts explain.
Plunging into residential property investing can be "scary," says Moore of Tampa. But it's also "empowering, because I am implementing a plan I've been thinking about for the last four years.
Now is the perfect time," she believes, to put it in motion.