Buying land for sale as an investment takes careful study, patience, professional assistance, and, of course, money. Because most land does not service debt well, many (if not most) land transactions are cash deals. Purchase funds come from a variety of sources – personal wealth, the sale of another property, or the wise investments in traditional assets (stocks, bonds, mutual funds). A lesser known, but steadily growing source of funds for timberland and other real estate investing, is the self-directed Individual Retirement Account (IRA).
Self-directed IRAs are similar to standard IRAs with the key difference being that the investor has much greater flexibility to invest in alternative or “non-traded” assets. While this investment vehicle has been available since 1974, only 2% of the nearly $7 trillion in total IRA balances is held in self-directed IRAs. Much of the reason why those with retirement funds haven’t heard of this option is that most IRA custodians/financial advisors focus solely on the standard investments like stocks, bonds and CDs. However, given the volatility of the stock market, although presently at all-time highs (for now), an increasing number of savvy investors are seeking alternatives that can provide greater diversity, and thereby greater stability, to their total retirement portfolio.
For the vast majority of Americans, the IRA is the largest amount of money they may ever hold in their lifetime. While diversifying assets is important to long-term growth, so too is protecting the principal and balancing risks against the reward. Therein lies the second most likely reason why many have avoided tapping their retirement funds to diversify into less well-known alternatives. The benefits of owning timberland via a self-directed IRA are well-documented, but the asset class and the IRS obligations must be fully examined and understood well before deciding to crack open the retirement nest egg for acquisition funds.
In summary, initiated investors who wish to add land to their retirement portfolio and who are willing to do the necessary homework can do so successfully via a self-directed IRA. If you are ready to start investing in land, contact an expert member of the Asset Quest team today!