This example shows the rental income total that can accumulate in your IRA over 10-years assuming the same $200,000 home is rented at $1,600 per month. Note: Rental rates in your area maybe higher or lower than this example.
$1,600 Gross rent per month
$492 Estimate of taxes and insurance per month
$220 Estimate of average management, maintenance and vacancy
$908 Net rent per month
$10,896 Annual rental income
As you can see the net rental income for one year is $10,896. Over 10-years the total rent is $108,960 without a single rent increase during the 10-years. The rental income may be larger or smaller than this example depending on the effects of market conditions and inflation.
However, the purchase of a $200,000 home that appreciates at the national average of 4% per year with normal rental income could be expected to grow your IRA value from $200,000 to $405,000 in this example with no tax consequence. The home could now be sold and the money re-invested in 2 more homes to repeat this performance, or the money could be used for retirement income if retirement age has been reached.
$200,000 Initial home value in SDIRA
$96,000 10-year appreciation
$108,960 Rental income
$405,010 Value at end of 10-year period in your SDIRA
If this were repeated with 2 more homes over 10 more years the IRA value would have grown to $1,215,030 and still no taxes! You (the IRA holder) can accomplish this as a passive investor. Or if you choose, you can rely on Keller Williams to arrange the purchase, management, maintenance, collection of rents, or a more active investor may choose do these activities yourself.
At Asset Exchange Strategies, LLC we have had conversations with potential self-directed IRA clients many thousands of times and the myths continue to live on after 20 years in the business. Some things like Sasquatch or area 51 seem to perpetuate in people’s minds without any substantial evidence the concept is correct or myth. Let’s […]
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