In fact, certain types of retirement accounts can be fully harnessed for your participation in the higher yield opportunities offered by today’s vibrant real estate market. You are not tied to high-priced and, at this stage, possibly overpriced equity markets.
To make this happen, you first need to consult with a qualified tax accountant, attorney or a financial advisor to determine the best options for your unique circumstances. If they agree this is a great way to balance and better maximize your portfolio, the process is actually quite simple.
Since physicians are some of the most active retirement account participants, using retirement accounts in this way may be a prudent and efficient way to maximize future profits. Doctors have sufficient income to be able to maximize their accounts and their advantages. They also generally have more tax-protected accounts available to them, including 401(k)s, 403(b)s, 457(b)s, 401(a)s, SEP-IRAs, individual 401(k)s, profit-sharing plans, defined benefit/cash balance plans, health savings accounts (HSAs), and backdoor Roth individual retirement arrangements (IRAs). They are also more likely than most to benefit from the tax rate arbitrage available by deferring taxes from their highly taxed peak earnings years to what is usually a much lower marginal tax rate during retirement.
Not all of these account types may be used for Ballard’s structured real estate platforms. Most commonly, investors will reallocate within existing IRAs and some 401(k)s. Retirement fund providers such as Fidelity or Vanguard have a variety of REIT mutual funds on offer, and anyone can invest in these just as you would a mutual fund.
For Ballard’s qualified investors, our investment approach and higher returns will make more sense than many REITs for a variety of reasons, not least their tax advantages over a conventional REIT mutual fund. Primarily, they pass through the depreciation from the property to shield some or all of its income from taxation. Ballard’s investments can be made inside a retirement account, within specific rules and categories such as self-directed IRAs. Indeed, investing in real estate with a Roth IRA can even allow you to pass on your investment to a beneficiary tax-free, among other advantages.
Increasingly, some financial advisors are recommending a portion of retirement savings be allocated to real estate. This of course reflects the successful performance of real estate as an asset class. And it also recognizes the value of additional portfolio diversity beyond traditional financial assets.
But, interestingly, it also shows how an increasing number of advisors are learning lessons from the best performing family offices, whose advisors have always taken a larger-scale, longer-term focus on actual wealth appreciation. They seek opportunities, cherish value preservation, and they understand true wealth inevitably involves not only financial but actual real property of all kinds.
Real estate can be less volatile than other asset classes, and family office investors have long appreciated the extent to which they ultimately have more control over investment performance and returns. Our investors are part of our team approach, and we work together in a transparent manner, offering a similar level of engagement.
The extent to which family offices invest heavily in real estate is unusual in the financial services industry. As some of our research articles reveal, one study shows that real estate makes up an average of 22.7 percent of family offices’ investment portfolios in the United States. In another survey, a full one-third of family offices surveyed said they planned to increase that percentage even more.
This is perhaps the most revealing lesson of the family office model, which is famously conservative and prudent. Real estate is pursued for its stability, and the tangible nature of real estate assets. Harnessing such assets as part of a sheltered retirement portfolio would seem to be the best of all worlds, and your financial advisor will be able to show you the tools by which your 401(k) and IRA can best be harnessed for better growth through real estate.