There is also good news for “reno to retail” investors. Part of the challenge for investors that purchased and rehabbed in the past is that there was a glut of new single-family homes with which they had to compete. Lenders also doled out loans on these new properties so easily it became somewhat difficult for investors to build a business.
After the “crash,” lenders tightened their lending standards, making it harder for Americans to purchase homes. This gave the flexible investor a much larger target market. Creative financing techniques and the ability of an investor to cut pricing by customizing the rehab allow investors to once again provide truly affordable housing (and in this case attainable) to those who need it.
Real estate investors are offering housing that is affordable to a wider range of incomes. In addition, these options play an important role in housing the workforce. In fact, investors have been providing “workforce housing” for decades, long before the term was even coined.
In one of my previous articles, I outlined some of the challenges of affordable housing as a true supply problem. I commented on the challenge of not having enough starter homes available in the market.
The starter homes that do make it to listing don’t stay on the market very long, and prices continue to go up and up because so few of these types of homes are available.
Investors are the answer to that dilemma! Large builders cannot make good business sense out of building smaller, more modest homes. There just isn’t enough margin to make it worthwhile – especially when they can build them bigger, better-quality and at much higher price points.
But we, investors who work in communities that are beginning to be desirable (again) and are full of houses that have been previously neglected, can rehab an old gem into a more modern family home and still make the numbers work. This is a bona fide win for the investor, the family and the community who gains a new neighbor and taxpayer.
Real estate investors are vital to a community as they provide more housing options both in selection and price as well as providing a healthy balance.
The current environment seems to offer great conditions for the real estate investor. They can build a successful and profitable business and help strengthen the communities in which they do business (and often live themselves). From National REIA’s perspective that is truly a great win-win!
I plan to purchase a rental property with my IRA. Does the rental income have to go back into my IRA?
Yes, all income generated by an IRA-owned property must return to your IRA. This ensures that you retain the tax-deferred or tax-free status of the investment.
What investments can I make using a self-directed IRA?
With a self-directed IRA, your investments are up to you, within the bounds of the IRS rules and guidelines. The IRS does not provide guidance on what investment types are permitted, but dictates only what is NOT permitted. Examples of prohibited IRA investments include collectible (such as artwork, stamps, rugs, antiques and gems), certain coins and life insurance. See IRS Publication 590 for more information about prohibited investments.
About the Author
Rebecca McLean is the Executive Director of the National Real Estate Investors Association.
Rebecca McLean is not an employee of Equity Trust Company. Opinions or ideas expressed by National Real Estate Investors Association, their affiliates and employees are not those of Equity Trust Company nor do they reflect their views or endorsement. These materials are for informational purposes only. Equity Trust Company, and their affiliates, representatives and officers do not provide legal or tax advice. Investing involves risk, including possible loss of principal.