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Real Estate Investments – Why Banks are Afraid

real estate investments

Recent studies show that real estate investments are more popular and more favored than investing in the stock market among younger U.S. adults. According to data from RealtyShares, 55% of Millennials want to invest (or are investing) in real estate. Furthermore, Fannie Mae reports that 85% of Millennials view real estate as a “good investment.”  While only 2-3% of American retirement account holders are invested in real estate and the alternative market, there is a strong sense among bank and financial institution executives that the self-directed IRA real estate market will have an adverse effect on their business.

Banks Favor their Investments Over Alternative Investments

With 50 million IRAs and over $9 trillion in IRA funds, the IRA industry is a very important market for the banks and traditional financial institutions. Banks and traditional financial institutions, such as Bank of America and Vanguard, make money when you invest in their financial products and keep your money there for a long time, whether through highly profitable trading commissions or by leveraging the power of your savings. They do not make money when you use your money to invest in alternative or nontraditional investments such as real estate or cryptocurrency. They get no commissions and they lose access to your money.

Accordingly, it does not make any financial sense for traditional banks or financial institutions, such as Fidelity, to offer you the ability to make real estate investments and other alternative investments with your IRA funds.  It just comes down to dollars and cents, which is the reason that banks and financial institutions do not advertise the fact that the IRS allows you to do a wide range of investments with your IRA, such as real estate.  Why would they inform you, then, that such a strategy was permissible and possibly even preferable depending on the circumstances?  Yet, such nontraditional or alternative retirement asset investments are perfectly legal. The IRS has permitted them since 1974. It says so right on the IRS website. And the best way to make those investments is through the self-directed IRA.

Millennials and Real Estate Investments

With real estate growing in popularity as an investment with millennials and with more and more IRA owners learning about the opportunity to buy real estate and defer tax on any gains or income (tax-free in the case of a Roth IRA), it is not surprising that the banks and financial institutions are so afraid of the self-directed IRA for real estate investments. The banks are correct in projecting that a growing number of IRA investors will look at the self-directed IRA real estate as a viable option for their retirement funds.

Get in Touch

If you have additional questions about real estate investments with a Self-Directed IRA, contact IRA Financial directly at 800-472-0646. We will be happy to help you become informed about this retirement structure. We encourage you to download our free, informational self-directed IRA info kit to help you along your way.

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