Buying Hawaii Real Estate with Your IRA

Are your retirement accounts invested in stocks, bonds, or mutual funds? Are you perhaps worried about the stock market crashing, or just correcting? Would you be able to stomach that loss? Do you have any protection plan in place for those funds? Or worse yet, is your IRA falling asleep in a bank earning a measly interest rate because you don’t want to risk it in the stock market?

Well, of course no one can predict what the stock market or real estate market is going to do, but at least real estate is a hard asset. Even in the last recession when real estate took a hit, our property values did not decline nearly as much as many areas in the mainland. The reason was likely two fold: conservative Hawaii lenders and the strong housing demand in Hawaii. Good news is that Hawaii’s market has not just rebounded, it has actually surpassed the values prior to the recession.

The Basics

With that said, a viable option to investing your IRA in financial accounts is to invest it in real estate. Basically the same rules apply as with any IRA account, so if you understand how your IRAs work, then what are you waiting for? Here’s how it generally works in simple terms:

1) Identify your current IRA account(s) you want to move to buy the property. Note: you can co-invest your IRAs with someone else’s IRAs to buy the property ie. Your spouse. For now, let’s assume only your IRA will be buying the property.

2) Good news is that you will be liquidating your current IRAs if they are in stocks or mutual funds, so you will be buying the property in cash. As they say, “cash is King/Queen,” so you will have a lot of buying power in negotiations. The transfer keeps the money tax deferred.

3) We will open up a custodial account that will hold the asset for your benefit. There are several companies to choose from, but one in Hawaii that you can physically go to is New Direction IRA. The property will generate a monthly income from the tenant, so easiest thing is to hire a property manager to pay the expenses. The net income goes back into your IRA account and grows tax deferred from the rent.

Dan Farladeau, Hawaii Division President of New Direction IRA, Inc.

4) The net income can be invested in anything, and is also subject to the same rules as your other IRAs.

5) You can take out the IRA funds or sell the property at any time, again subject to the IRA rules. If you want to buy a different property, the IRA remains tax deferred.

Want to Know More?

So if you have a high-risk tolerance, leave your money in the stock market; however, if you think real estate is a great place to invest your hard-earned money, then why not take a look at this option? If you have questions, or would like assistance to buy a piece of property with your current IRA, contact me.