People with significant assets in their individual retirement accounts can tap that cash to invest in a retirement home, but there are many complexities involved. They have to establish a self-directed IRA with an independent trust company . They have to treat the home as an investment, so they can't use it as a vacation home or rent it out at below-market rates to friends and relatives. When it is time to retire and they want to start using the home, they have to pull it out of the IRA, and if it's been held in a tax-deductible IRA, that would force them to pay income taxes on the entire value of the house. That makes it far preferable to use a Roth IRA (from which withdrawals will not be taxed) to buy real estate.
Older investors who have been buying into the market may turn into net sellers once they actually retire, as it can eat up a lot of that monthly Social Security check to run two homes. Arzaga tells his clients that once they've made the decision to move, they should put their older homes on the market and not wait for better prices that could be years down the road. Selling sooner rather than later could protect their cash flow and provide better housing deals that could pull a younger generation of buyers into the market.
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