Whether it’s a single-family rental, multifamily property, private real estate fund, or fix-and-flip deal, real estate is one of the most effective and widely used investments within self-directed individual retirement accounts (SDIRAs). Here’s why real estate and SDIRAs are a compelling combination for building and growing wealth.
Expanding Beyond Traditional Retirement Assets
SDIRAs offer a significant evolution in retirement planning, empowering investors to move beyond the conventional limitations of publicly traded stocks, bonds, mutual funds, and ETFs. Unlike IRAs managed by brokerage firms, SDIRAs give investors direct control over a diverse range of alternative investments—with private real estate standing out as a preferred choice.
Real estate presents distinct advantages that make it particularly well-suited for retirement investing through SDIRAs:
Inflation protection – One of real estate’s most compelling advantages is its potential to hedge against inflation, which is among the greatest threats to retirement security. Historically, property values and rental income have shown a tendency to outpace inflation, helping to preserve purchasing power over time.
Aligned time horizons – Retirement planning is a long-term endeavor, often spanning decades from early contributions to post-retirement withdrawals. Real estate operates on a similar timeline, where extended holding periods allow properties to appreciate, build equity, and generate increasing returns—aligning well with long-term retirement goals.
While real estate is a long-term investment, liquidity planning is crucial within an SDIRA, particularly for investors approaching RMD age. Strategies such as holding income-generating properties, utilizing installment sales, or investing in diversified funds can help manage liquidity needs.
Dual wealth-building engines – Most investments offer either capital appreciation or income, but real estate can provide both. Properties appreciate over time, increasing net worth, while rental income delivers steady cash flow. Within an SDIRA, both mechanisms operate tax-deferred, accelerating compounding and wealth accumulation.
Historical resilience – While real estate markets experience cycles, well-selected properties have historically demonstrated more stability than publicly traded assets. Private real estate has been less volatile than equities during economic downturns, offering a stabilizing force within retirement portfolios—especially crucial as investors approach retirement age.
Diversification Benefits of Real Estate
Real estate’s diversification benefits make it an attractive SDIRA investment. Traditional retirement accounts limit investors to market-dependent assets like stocks and bonds, while private real estate operates independently of public markets.
Private real estate has historically exhibited low correlation with publicly traded equities. Unlike publicly traded securities, which often move in tandem during downturns, real estate values are driven by local economic conditions and property-specific factors. This independence strengthens retirement portfolios, mitigating risk when traditional investments falter and providing a buffer against market volatility.
The Power of Leverage in SDIRA Real Estate Investing
One of real estate’s unique advantages is the ability to use leverage. Unlike most retirement account investments, which require full cash payment, SDIRA real estate can be partially financed—potentially enhancing returns while maintaining tax advantages.
IRS regulations mandate the use of non-recourse loans, where only the property itself serves as collateral, with no personal guarantee from the IRA owner. Even with higher interest rates and fees, leveraged positions often yield significantly higher returns on invested capital, compounding wealth within the tax-protected SDIRA environment.
Maximizing Tax Advantages
Traditional real estate investors can benefit from tax advantages such as depreciation deductions, mortgage interest write-offs, and preferential capital gains treatment. However, they still face annual tax obligations on rental income and capital gains upon sale.
Within an SDIRA, real estate investments benefit from uniquely advantageous tax treatment. In Roth SDIRAs, for example, rental income and profits from property sales can grow tax-free and qualifying withdrawals can be tax-free. As such, all funds can continue to be reinvested and grow without annual tax erosion. Over a 20–30-year retirement investment horizon, eliminating tax drag can significantly increase account balances compared to taxable real estate investments.
Investing in real estate through an SDIRA requires careful attention to IRS regulations, particularly regarding prohibited transactions with disqualified persons. Additionally, leveraged real estate in SDIRAs may trigger unrelated debt-financed income tax (UDFI) on the portion of income attributable to the financed amount, while certain active business activities within the property could generate unrelated business income tax (UBIT).
The complexity of these regulations makes partnering with experienced professionals—including SDIRA custodians, tax advisors, and attorneys specializing in SDIRA investments—essential to maintain compliance and maximize the benefits of this powerful retirement strategy.
Unlocking Retirement Potential Through Real Estate
Real estate within an SDIRA offers a powerful combination of long-term appreciation, income generation, diversification, and tax advantages, making it a preferred investment for sophisticated investors seeking to build and preserve wealth.
Contact our team to learn how Caliber can help you access professionally managed, institutional-quality real estate investments through SDIRAs.
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About Caliber (CaliberCos Inc.) (NASDAQ: CWD)
With more than $2.9 billion of managed assets, including estimated costs to complete assets under development, Caliber’s 16-year track record of managing and developing real estate is built on a singular goal: make money in all market conditions. Our growth is fueled by our performance and our competitive advantage: we invest in projects, strategies, and geographies that global real estate institutions do not. Integral to our competitive advantage is our in-house shared services group, which offers Caliber greater control over our real estate and visibility to future investment opportunities. There are multiple ways to participate in Caliber’s success: invest in Nasdaq-listed CaliberCos Inc. and/or invest directly in our Private Funds.
Investor Considerations
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.
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