Hugh Bromma believes in fortifying clients’ retirement plans with big helpings of real estate–not only diversification into REITs, but actual purchases of residential houses in their hometowns or local restaurants, bringing their retirement plan an income stream or a potentially nice profit from a sale.
Bromma, CEO of The Entrust Group, says investors can seek out sophisticated financial advisors who can offer them a chance to invest in properties with their IRA and in some cases, 401(k) funds as individuals or part of a group of like-minded investors who pool their money.
Entrust Group, which is relocating from Oakland, California, to Reno, Nevada, provides record-keeping, reporting, and consulting services for benefit and retirement plans. The company also manages about $2 billion in assets for corporations and individuals that seek to invest in non-traditional assets, such as real estate and limited partnerships, for retirement accounts. About 60% of Entrust’s assets are invested in real estate, primarily residential properties. Entrust, which Bromma founded in 1981, says it has upwards of 30,000 clients invested in real estate, notes, and private placements.
Bromma, 61, recommends using an IRA or a self-directed 401(k) to buy properties, and then reap the tax advantages of buying under an IRA. Real estate taxes don’t have to be paid on appreciation, rental income, and property sales in many instances, under a Roth IRA or other qualified plan, because they are sheltered.
Of course, this approach has its risks–those of a volatile real estate market and of running afoul of the self-dealing regulations of IRAs, according to Phillip Cook, a CFP with Cook and Associates in Torrance, California.
Investing in real estate is “hardly a panacea,” Cook notes. “One of the good things about buying real estate is the depreciation deduction, which is lost within any qualified retirement account because it is already sheltered income,” he notes.