||Ask Dr. Don
IRA real estate investing
Dear Dr. Don,
In an effort to diversify my portfolio, I am considering adding
real estate to my IRA investment portfolio. Given the current market
trends, would you consider this a wise selection?
I encourage people to take a holistic approach with their investments.
If you have a net worth of $400,000 and half of it is the equity
in your home, then you already have a substantial investment in
real estate. Don't just look at what's in your IRA when deciding
how to diversify.
That said, the easiest way to add a real estate component
is to invest in publicly traded real
estate investment trusts, also known as REITs. Besides the ease
of investing, some REITs offer diversification benefits across geographic
regions and among types of properties that would be hard to duplicate
on your own. Economies of scale in managing the properties make
for lower administration costs too!
You can own individual properties in your IRA; you
just have to find a trustee to administer your self-directed IRA.
The administrative costs can be expensive, but the potential returns
may justify that expense. Read "Buying
real estate with your IRA" to learn the steps you need
to take to structure this account. Consider the tax implications
of making this a Roth IRA vs. a traditional IRA.
A Ginnie Mae bond mutual fund is one of the most conservative
ways to invest in real estate. These mutual funds invest in mortgage-backed
securities. It's not what most people have in mind when they think
about investing in real estate, but buying securitized mortgages
does count as a real estate investment.
Two bad years in the stock market is a strong reminder
that your portfolio needs to be diversified across investments,
but it isn't a reason to rush for the exits and abandon investing
in stocks. A real estate slump can negatively impact your returns,
-- Posted: May 6, 2002