More and more investors have been turning to real estate as a way to diversify their retirement portfolios. Everything from pre-construction, condominiums and rental properties to rehabs and lease options are being held inside of IRAs
plans. With larger contribution limits and more than $3 trillion currently in retirement plans, investors are now able to look outside the realm of stocks and mutual funds into assets such as real property. Though investors continue to become more sophisticated in their real estate transactions, undeveloped land remains a clear-cut favorite among IRAs and other retirement plans. The simplicity of raw land provides investors with the opportunity to diversify into real estate, without the headaches of upkeep.
The obvious upside to adding real property to a retirement plan is diversification. Real estate has long provided investors a way to offset fluctuations in the securities market. Over the years, millions of investors have utilized this diversification strategy in their personal portfolios, yet only recently have they started implementing this method within their retirement plans. One of the reasons why less than 3% of all retirement funds are being invested in real property is the “idea” that managing the asset is difficult. An attractive attribute to land, is its simplicity. Land truly provides investors with opportunity to take part in the real estate market, without the headaches of upkeep and unforeseen expenses.
Keep in mind that when a retirement plan holds a piece of real property, all the expenses involved must be paid for by the plan. Simply put, if an IRA owns a rental property, then the IRA must pay for all of the repair and upkeep of that unit. Investors who self direct their retirement plans into assets like real estate will have to be more involved than those who just turn their accounts over to a Brokerage house.
However, raw land offers a low maintenance way to invest in real estate. Land has only one relatively predictable expense in annual property taxes. Of course you could lease out your land to a farmer or a timber company and there may be additional expenses. But for most parcels of land, property taxes are the only expense. An investor can diversify part of their retirement portfolio into a parcel of a land and not have to worry about any unexpected repairs or cost.
Any economist or financial advisor will tell you appreciation is driven by supply and demand. There is a simple truth when it comes to land—there is only so much. The supply is somewhat fixed, especially when it comes to desired land around mountains, waterways and growing metropolitans.
The goal of a retirement plan is to build up your own nest egg through wise investments. Diversification is the key to any successful portfolio. Understanding all of your investment choices will only make you a smarter investor. When it comes to diversifying into real estate, raw land is about as close to a mutual fund as you will find. It’s an asset that can be purchased and held for the long term, without the worry of unexpected repairs or expenses. Whether it’s a lot in a planned development near Destin, Florida or a large track of farm land outside of Topeka, Kansas; land provides a simple way to diversify a stock heavy portfolio.