However, real estate is often out of reach for people with a
tax-free Roth IRA; because a person is limited to a maximum contribution of
$5,000.00 per year, it takes a while for that Roth to build in value to the
amount needed to acquire a piece of real estate.
While the Roth SDIRA may not be able to buy an individual
piece of real estate, it may be able to partake in a real estate investment
trust (REIT) or real estate syndicate, along with other investors. One of the
key advantages to these options is that the IRA holder can enjoy the benefits
of the real estate investment in a passive fashion; he is effectively
outsourcing the daily management duties to someone else. The drawback is that
because the IRA is participating with others, its investment is not
individually secured by a unique piece of real estate. As everyone knows, the
value of real estate can go up or down, so it is important to be very sure of
how the investment is secured – or not.
Another option for a Roth SDIRA to make money is by buying a
business; some low-cost business startups involve multi-level marketing
opportunities, or MLMs. In fact, none other than Robert Kiyosaki of “Rich Dad,
Poor Dad” fame is a fan of MLM opportunities for business people. Some popular
MLM companies include longstanding brands like Avon and Amway; newer entries in
the field include the popular Beach Body brand, which includes fitness products
advertised heavily on television such as P90X, Insanity and TurboFire workout
programs.
And while these are all solid companies, they involve one
primary problem for the SDIRA – the income from them must be passive (see prior
post on “passive income” for definitions). And it can be difficult, if not
impossible, to be passive and succeed in a MLM environment
One thing to consider is the prospect of teaming in a MLM business, in which the Roth SDIRA puts up the start-up money and another individual performs the day-to-day activities in the business. Once the Roth makes its initial money back, the business would share the profits.
If you would like to discuss this possibility, please send me a direct message at bvplaurie@gmail.com. Please note that this article is for information purposes only, and is not an offer of a security or investment in any way, shape or form.