Real estate is by far the most popular choice for the self-directed crowd.
The reasons for this are many:
- Real estate in any form is always a popular investment. The specific platform doesn’t matter.
- Real estate provides a tangible alternative to the wild roller coaster of the stock market. If an investor gets a semi-decent education in real estate investing, he/she should be able to turn a solid profit. The risk of the crazy public opinion variation in determining stock prices is not present to the same degree in real estate.
- The property that many investors purchase is a local one. They know it, and they understand the neighborhood around it. This comfort level with the property gives them a good sense of the potential profitability of the property.
- Many investors plan on using the property after they retire. The logic follows that if they’re going to get a property for later, why not make some money off of it in the meanwhile?
Are there any cons to real estate investing?
The pros and cons of real estate investing have already been treaded and retreaded in books, magazines, and innumerable newspaper articles. Everybody has an opinion, and very few of them are ever in concordance with each other. We’re not going to get into that morass right now. One point that should be made, however, is unique to self-directed platforms. As you’ve already learned, self-directed investors have to be careful to avoid Prohibited Transactions. Out of all the asset classes, real estate is most probably the one with the most opportunity to commit a Prohibited Transaction. (See Chapter 9 for a listing of those related to real estate.) Now this in no way implies that you actually will ever come close to do anything wrong. Having a grasp of what constitutes a Prohibited Transaction will virtually eliminate any possibility of ever actually being involved in one. Just take note that if you do plan on investing in real estate, it pays to call your provider or favored financial professional and ask any relevant questions. Find out more about a Real Estate IRA.