The Affordable Housing Crisis: How Your SDIRA Can Help You Be a Part of the Solution

The affordable housing crisis in the U.S. is difficult to ignore, with millions of families struggling to find safe and affordable places to live. The country has a shortage of over 7 million affordable homes for extremely low-income families, and the cost burden to these families is significant — 70% of these families spend more than half their income on rent. 

Having access to affordable housing not only betters the lives of families but also encourages economic growth. Every dollar invested in building affordable housing solutions boosts local economies by increasing the financial stability of families, growing local tax revenues, and creating communities that support better access to education and employment opportunities.  

So how can you be a part of the solution?

Through your self-directed IRA (SDIRA), you can invest in affordable housing to help make a difference and create lasting change in communities, while also helping to grow your retirement savings and your wealth.

Understanding the Affordable Housing Crisis

A lack of affordable housing not only magnifies poverty and inequality but also hinders economic mobility and the overall well-being of society. 

As housing costs continue to rise and the supply of affordable housing for low-income families lags far behind demand, more and more people are being forced out of the market, which leads to increased homelessness, overcrowding, and housing insecurity.

Rising property values and high construction costs make it challenging to develop new affordable housing units. Government funding and support for affordable housing projects have often been insufficient to meet the pressing need. Also, similar to other housing projects, the creation of affordable housing is impacted by restrictive zoning laws, regulatory barriers, and community resistance.

Why Invest in Real Estate with Your Self-Directed IRA

The challenges in addressing this crisis require creative solutions, such as leveraging private investments through vehicles like self-directed IRAs.

SDIRAs allow you to diversify your retirement portfolio beyond traditional stocks, bonds, and mutual funds. With access to a wide range of alternative investments, including real estate, you can reduce your exposure to market volatility and create a more balanced portfolio and investment strategy.

With greater control over your investment decisions through your SDIRA, you can pursue opportunities that align with both your financial goals and personal values. You can take advantage of real estate investment opportunities while focusing on sectors where you can make an impact, such as affordable housing. Your investment in affordable housing can provide significant benefits to not only your portfolio but underprivileged communities.

How Your SDIRA Can Help Address the Affordable Housing Crisis

By directing your SDIRA to invest in affordable housing projects, you can help bridge the gap between the great demand for affordable housing and the inadequate supply, while also potentially earning stable income and return on investment. 

There are several ways you can get involved and use your SDIRA to address the affordable housing crisis:

Direct Investment

You can use your SDIRA to directly invest in the construction or rehabilitation of affordable housing units. This allows you to have a tangible impact on communities by creating or preserving affordable housing options for low-income families. 

Your goal may be to purchase a property in a lower-income neighborhood through your SDIRA and renovate and rehab it to provide affordable rental units in the community. This can generate rental income for your retirement account, while also contributing to creating affordable housing solutions for populations in need.

You can also partner with developers concentrating on affordable housing projects, to leverage their expertise and resources. Partnerships allow you to participate in larger-scale projects that you might not be able or willing to manage on your own. Affordable housing developers have the experience to navigate the complexities of affordable housing construction, financing, and regulatory requirements, and oversee these projects to successful completion. 

Engaging and partnering with non-profit organizations dedicated to affordable housing is another avenue for direct investment in affordable housing. Non-profit organizations are deeply involved in the communities they serve and represent, and often have access to grants, government subsidies, and other resources that can increase the financial viability of affordable housing projects. 

Partnering with developers and non-profit organizations allows you to contribute to socially impactful housing projects while also benefitting from investment growth in your SDIRA.

Indirect Investment

If you prefer a more passive approach to real estate investing while contributing to the solution of the housing crisis, you can use your SDIRA to invest in real estate investment trusts (REITs) or private equity funds dedicated to affordable housing initiatives.

Through affordable housing-focused REITs, you can gain exposure to a portfolio of income-generating properties without taking on the complexities of property ownership or management. You can support affordable housing solutions with less risk and lower time commitment while achieving diversification and steady returns. 

Private equity funds dedicated to affordable housing are another option for indirect investment. 

These funds often target large projects, and pool capital from multiple investors to acquire, develop, or rehabilitate affordable housing properties. By investing in private equity funds through your SDIRA, you can benefit from the expertise of fund managers who specialize in affordable housing investments, while also contributing to social impact projects.

Investing in REITs or private equity funds can also provide greater diversification to your SDIRA portfolio, as these investment vehicles often hold multiple properties in different geographic areas. This increased diversification can help mitigate risk and achieve more stable returns over time.

Make a Social Impact with Your SDIRA

SDIRA investments in affordable housing are attractive to those who want to achieve both financial growth and positive social impact, by making a meaningful difference in society through their investment choices.

Your SDIRA offers you the opportunity to align your investment choices with your social values. By using your SDIRA to invest in affordable housing, you can contribute to bettering communities while securing your financial future. It’s important to do your due diligence in evaluating your potential investment opportunities, and carefully consider the challenges and risks involved before making a move.

At Chicago Trust Administration Services, we have the experience and knowledge to help you diversify your self-directed IRA portfolio with alternative investments like real estate. We provide the necessary regulatory guidance and compliance, so you can focus on pursuing real estate investment opportunities like affordable housing to not only meet your financial objectives but also meet the needs of underserved communities.

To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.

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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.