Self Direct IRA / Roth IRA
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Contact the The Real Estate Life for a list of properties What is a Self-Directed IRA?A self-directed IRA is technically no different than any other IRA (or 401k). A self directed IRA is unique because of the available investment options. Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. A truly self directed IRA custodian, such as Equity Trust, allows those types of investments in addition to real estate, notes, private placements, tax lien certificates and much more.
In addition to the tremendous IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), you are able to invest tax-free in investments that you know and understand, which through the power of compounding interest, will create true wealth for you and your family.
Here's a partial list of real estate-related investments that you can make with a self directed IRA. Raw Land / Single-Family Homes / Commercial Property / Apartments / Duplexes / Condos/Townhomes / Mobile Homes / Real Estate Notes / Second Mortgages / Partial Notes / Real Estate Purchase Options / Tax Liens Certificates
Investing in real estate can be as simple as purchasing a single family home to put
Based upon U.S. real estate cycles going back to 1800, a property market bottom is likely to occur in early 2010 (see Blog “Property Market Bottom in 2010”). There were peaks in land sales or real estate speculation in 1818, 1836, 1854, 1888, 1908, 1926 and 1944. The peaks were followed by downturns or depressions, typically lasting four years. World War II disrupted the pattern. But the cycle resumed in 1955. The real estate market in the US again peaked in 1989 and bottomed in 1991. And 18 years later, in 2006-07, it hit another high. We are now into the third year of downturn, so by next year the market should bottom, which will mark the beginning of the new 18-year cycle. Conclusion: There should be substantial real estate buying opportunities for people with cash next year, which will set them up comfortably for the next 18 years.
The vast majority of Self Directed IRA investors focus on condos, single and multi-family homes and small apartment buildings. In regions where these types of properties haven’t taken huge hits because of massive overbuilding, there are still very good opportunities for excellent cash flow and long-term appreciation. In fact, now that most of the de-leveraging (de-valuation) of real estate has taken it’s toll, the next few years may be the best buying opportunity in a generation.
During the “real estate bubble”, much attention was payed to short-term residential investments, otherwise known as “flips”. These investments were very successful for many Real Estate IRA investors. Now, things have literally “flipped” and only professionals who really know what they’re doing are able to make a profit with this type of investing. So, proceed with caution.
Investing in raw land or finished lots has always been a popular buy-and-hold strategy and is still viable. However, in this environment, great care should be taken to diligently research the opportunities and pick only the very best deals. Be aware that buying undeveloped land is entirely different than buying a lot where water, sewer, electricity and telephone lines are readily available. When buying raw land, you cannot make assumptions that these utilities will be available. In other words, be absolutely certain the land will legally, geographically, geologically and environmentally support the type of building suitable for the property.
These properties include, but are not limited to, retail, wholesale, hotel and service businesses. In many ways, owning these types of properties can be better investments than residential properties because businesses pay much higher rents per square foot. The downside is that the owner’s success is dependent upon the tenant’s business. In today’s market, that means being diligent to understand and comprehend everything possible about the business and the business owner’s finances. Always depend on the expertise of a commercial real estate professional to guide you. And, remember, in the next few years, there will be tremendous opportunities to pick up some fantastic deals. (In general, because of the size of most commercial investments, partnering is an excellent option. Contact us to learn more about this strategy.)
For many people, owning investment real estate property is too expensive, too risky and too time consuming. Real estate options are a low-cost way for investors to control interest in a property without having to buy it outright. An “option” is a legal instrument that gives the holder of the option “exclusive right” to buy or not to buy a property. No one else can buy or sell the property during the terms of the option set forth in the option document. This strategy is one of the most popular for Self Directed IRA investors who have a limited amount of funds in their account, but want to maximize opportunities.If you’re not familiar with real estate options, there are many good books and articles available on the subject that are available through the Real Estate Life Radio Program.
More Available Options 1. Pension assets can be invested directly in a real property 2. You can use other peoples IRA’s or personal monies for a Real Estate Purchase or your IRA with other 3. Leverage the investment with Non-Recourse Loans. Consult your Tax professional regarding 4. Set up an LLC or Land Trust –Your IRA can own interests in LLC’s or be a beneficiary of a Land 5. Be a lender – your plan can loan to anyone that is not your ascendant or descendant or spouse – 6. In all cases, investment income goes back to the plan and expenses are paid by plan
Tenants make payments “For the Benefit Of” (FBO) your plan – Service providers, utilities, insurance maintenance bill are opened in the name of your IRA and bills are submitted. There are four options for individual purchase of Real Estate. You can:-Use personal funds and take advantage of the tax write offs-Use Tax deferred retirement accounts such as an IRA or Qualified Plan-Use an Tax Free Roth Plan (IRA or Individual K)-Use Tax Deferred Exchanges 1031 (not required in Tax Deferred Plans)
Remember: · The amount of leverage used affects the comparative tax advantages of each option. The less leverage · Properties can be distributed in different ways to prepare for retirement. IRA to Roth Conversions may · Rehabs- make sure plan has sufficient funds to complete a rehab and hold for sale post rehab - cash
Other Investment Options in your Self Directed Plan · Factoring · Foreign Sales Corporation Stock · Gold Bullion, precious metals · Joint Ventures · Leases · LLC’s, Limited Partnerships · Securities, CD’s, Stocks Bonds, Mutual Funds · U.S. Treasury Minted Coins · Trust Deeds and Notes, Tangible Asset Deeds
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