The rent was around $500 per unit when she purchased the properties. The duplexes already had tenants, who were able to stay in the units during the updates. In the first year, she received $24,000 in rent income in her IRA.
Carmen’s son introduced her to an app called Cozy, which provides insight into the average rent in the area. After research, she decided she could charge as much as $620 per unit once the updates were completed, bringing the rent more in line with the regional average. This income will bring her annual return on investment to 13 percent.
Adding more properties for future stability
With the initial self-directed investment experience completed, Carmen is on a roll. She added units to her portfolio and is now receiving income from six rental units. Her goal is to accrue enough rental properties in her portfolio that she can receive $10,000 per month in passive income back to her IRA.
Video: Real Estate Agent Earns Passive Income with Self-Directed IRA
Carmen says she “probably won’t really retire” but seeks the peace of mind of having the stream of passive income coming into her retirement account. Income as a real estate agent can vary, so this would give her something to fall back on in later years. “I want something more stable coming in,” she says.
Carmen is also planning for her children’s financial future. So far she has opened a Coverdell Education Savings Account (CESA) for one of her sons, with plans of helping him grow his account by co-investing her IRA with his CESA in real estate investments. An added bonus is that she’s teaching her children financial fitness in the process.
While she is imparting financial and investing wisdom to her children, Carmen admits the enrichment is mutual.
“My son is making me a better landlord through his hours of learning,” she says.
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1Am I restricted to only purchasing residential property with my IRA?
You are not limited to residential real estate. Your IRA can hold various investment properties such as commercial buildings, vacant land, condominiums, mobile homes and apartment buildings, in addition to residential property.
2Can my IRA purchase real estate that I currently own?
No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person, which includes yourself.
Case studies are provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal. Information included in the above case study was provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.