Help Yourself While Helping Others With Unique Self-Directed IRA Real Estate Investments

I attended a real estate seminar years ago. The instructor was a brilliant man. He pointed out that with real estate virtually any individual could receive phenomenal rates of return. As part of his presentation he compared real estate to other investments. He was especially fond of drawing parallels between real estate and the stock market.

First he said that he didn’t have anything against the stock market – that is, if you were happy with a return of around 10 to 12 percent a year. Of course, he showed the class many examples where real estate investors were making as much as 50 percent returns per year and more on carefully chosen properties.

Another one of the differences between real estate and stocks was that people controlled their own destiny with real estate while with stocks they had to depend upon the skills and savvy of a CEO and board of directors. I distinctly remember how I appreciated the autonomy involved with real estate investing. I liked the idea of directing my own investments.

Well, never before in my lifetime have I seen the above-mentioned philosophy hold so true as it does today. By the looks of things in the stock market the folks steering publicly-traded companies have made a mess of things. It seems that every day the stock market continues to decline while more and more capital simply evaporates into thin air. Where it will stop, nobody knows.

And in fairness, I guess one could say the same thing about real estate. On the heels of the sub-prime mortgage crisis property values around the country are falling fast. But here’s a little secret: there is still tons of money to be made with real estate. The only thing you’ll need to understand is that there are proven methods that will work in this type of market – all you need to do is become acquainted with them. And again, real estate is still an investment where the individual owner has complete control.

Understanding that, an adjustment to traditional real estate investing strategies itself is powerful enough. But couple that with another technique that might be considered unconventional and you’ve got a real winner.

The unconventional strategy is to buy and sell real estate in your IRA. Yes, you can do this. What you first need to do is convert your retirement account or accounts to self-directed IRAs. A self-directed IRA, or individual retirement account, is one that you, rather than a banker of broker control exclusively. Before we get further into that, let’s first take a look at the main advantages of IRAs.

  • Gains realized in an IRA are tax deferred until the time an individual retires and begins to receive distributions (payments) from the account. At that time the distributions are taxed as regular income.
  • With the tax deferred status of IRAs your money is able to compound quicker. This is because the principle balance stays intact as you have no need to withdraw funds to pay taxes.

These are the main benefits of an IRA. By themselves they’d be great. But couple these two advantages with opportunities to pick up phenomenal bargains in many of our country’s real estate markets and you’ve got a formula for some very nice returns.

That alone would be enough to motivate many folks to at least investigate the possibilities in real estate. But it gets better. There is a unique program available where everyone involved in such a transaction is far better off than before. The investor benefits by the current low prices of property and significant resale returns. And here’s an additional bonus: in many cases there are qualified buyers waiting for the house.

The community is better off because an empty and potentially problematic house is now occupied. The municipality is better off because there is now a family living in the home and paying property taxes. The family is better off because they’ve gotten into their first home or have upgraded to a more desirable one. Oh, there’s another great feature that comes as a byproduct of this plan. The program is carried out almost exclusively with private, rather than taxpayer’s money. The entire program is a winner for all. Pretty neat, huh?

How to Use Your IRA or 401k to Own Real Estate

Wild Stock Market Preventing You From Building Wealth in Your Retirement Account?

If so, you may want to join the growing number of people who are investing their retirement funds in real estate. There’s real long-term investment growth potential in using tax-deferred funds to purchase property.

The Problem With Most IRA’s

Most IRA Custodians-like brokerage companies and banks-limit your investment options to instruments that benefit them!

They offer you a menu of choices that include cash, CD’s, stocks, bonds, mutual funds, ETF’s, etc…
But Wait…You Have Other Options!

In reality, the IRS code does allow retirement plans to invest in a much broader selection of investments like:

* Real Estate (land, condos, commercial property, etc…)

* Leases

* Trust Deeds

* Tax Lien Certificates

* Commodities

* Limited Partnerships

* Mortgage Notes

* Secured & Unsecured Loans

* And More…

To successfully navigate the IRS Code, you must find a professional firm who is experienced with this process.

Real Estate IRA Step #1: Find a Competent “Custodian”

The first step is to find an IRA Custodian that is experienced at handling the details of this process.

This has become a popular niche in recent years, and it shouldn’t be too hard to find a competent custodian. Ask your CPA or tax attorney if they handle “Self-Directed Retirement Plans” or who they would recommend. We just did a quick search on Google, and you’ll find lots of specialists promoting their services online.

You can’t serve as “Custodian” of your own account, and the “Custodian” is the firm who actually holds title to the real estate. Do your homework, and understand the process.

Real Estate IRA Step #2: Find a Suitable Property

You’ll probably want to enlist the help of a competent local real estate broker to find a suitable property. They’ll also help you manage all the little transaction details.

This is your retirement fund we’re talking about, so let the experts help you navigate the process and avoid surprises!

In addition to domestic homes, condos, land, and commercial properties, some custodians may permit you to purchase foreign property.

Real Estate IRA Step #3: Assembling Your Funds & Closing

Sometimes purchasing a property may require more funds than you currently have available in your IRA account.

Don’t despair! You can purchase an interest in the property in conjunction with other individuals.

What about your spouse, a business associate, or a friend-are their retirement plans declining in value from over-exposure to the stock market too?

Borrowing funds is possible, but the loan must be a non-recourse loan.

A non-recourse loan is secured by a pledge of collateral-typically real property-but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender’s recovery is limited to that collateral.

Non-recourse loans are still available, even in today’s risk-averse lending environment.

Expect lower loan-to-value ratios than with conventional financing, and you’ll often need to have 30-40% of the purchase price as a down payment.

A title/escrow company will prepare the closing documents, along with your custodian. At closing, the title to your newly-acquired property will reflect the name of your IRA Custodian for your benefit

Real Estate IRA Step #4: Operating Your Property

All expenses, including taxes, insurance, and repairs, must be paid from funds in your IRA.

You’ll need extra liquid funds available to pay these expenses. These funds can come from the deposit of rental income from the property into your IRA acct, or making annual contributions as the law allows.

Real Estate IRA Step #5: Selling Properties Held By Your IRA

It is possible to sell properties while they are held by your IRA, provided that the purchaser is not a family member.

After your sale closes, your IRA account now holds the cash proceeds, and you’re free shop for new investments!

Intrigued? Here’s Your Next Step…

PS: The process may sound a bit intimidating…but with the right experts helping you every step of the way, you’ll be surprised how quickly and easily you’ll be on your way to making your retirement dollars really work effectively for you.

*A Few Important Notes:

The IRS will not let you occupy your IRA-Owned property as a primary residence.

Furthermore, you cannot place real estate that you already own into your own IRA.

* This article is a highly simplified overview of a technical and specialized process. You should consult with an attorney, your CPA, and a qualified Custodian to complete an IRA real estate investment.