Self Directed Real Estate IRA: An IRA Investment That May Provide a Safe Alternative to the Traditional Approach
Is your IRA looking anemic? Tired of getting 1% on your IRA money market fund? Don’t want to risk gambling with your IRA in the stock market?! Would you really like to start increasing the value of your IRA so that you may actually be able to retire one day?
How many houses does your IRA own??
Then you have come to the right place as this article will let you know about a little known IRA investment that may provide a safe alternative to the traditional approach. It is a Self Directed Real Estate IRA!! Essentially, if you properly set up a Self Directed IRA, you can purchase real estate with your now dormant IRA money.
Self Directed IRA Basics
1. Select a company to assist you with the establishment of a Self Directed IRA. While some banks and investment companies can assist you they generally limit what you can buy to products they sell. We don’t want that. Therefore, select a company that specializes in Self Directed IRA’s for real estate. There are a number of reputable companies out there and I would be happy to provide the information if you call or email me.
2. When you select the company to manage your new IRA they will provide an Administrator for you and they will assist you in moving funds from your current IRA into your new Self Directed IRA. This has to be done in a specific manner as any funds you receive directly from your IRA may immediately make them taxable as a distribution (never move IRA money without qualified assistance).
3. Now that you’ve got your money in the right place it is time to GO SHOPPING. As it is a buyers market, this will be great fun. Your IRA can purchase raw land, rental properties, commercial property, condominiums, mobile homes, boat slips – really, anything.
Of course, all of these have to be handled strictly as investments and cannot be used personally. There are other restrictions such as you cannot buy a property owned by a relative and you can not buy a property from yourself. Again, working with a qualified company is essential so you do not make any mistakes that will put you on the wrong side of the IRS.
4. YAHOO! — you found the property. You found a great deal with the potential for a great monthly cash flow. This is where your Realtor needs to know how to write up the contract (I can help you with that). Once the contract is negotiated, we take it to your administrator for review.
5. Your administrator sends your IRA money to escrow and the transaction is closed!! As the monthly rental income comes in it goes to your administrator who puts it back in your IRA account (you can NEVER receive any money directly in this transaction).
There are Other Facets to This Investment
These are just the basics and you now know that there is a potentially better investment than the 1% money market you have been experiencing for the last three years (thanks to Uncle Ben). As inflation (like the REAL inflation of 5%-7%) has been eating away at your IRA money gaining 1% (1%-5% = BAD NEWS), it may seriously be time to look at an asset that certainly is close to the bottom (real estate) and will do much better than your paper dollars as they continue to erode. Real estate is a serious investment tool to consider.
There are other facets to this investment, so please call or email if you have questions or want to know more. Like, can you borrow money through your IRA to help you leverage your real estate purchase? ANSWER: Yes, but it has to be a very specific type of mortgage and your current lender (who is a nice person I am sure) will not understand it or be able to help.
If your IRA is a little short of buying the property outright you can add personal savings, that are not IRA, and still make the transaction work. Let’s say you want to form a Hui to buy property (mom, dad, friends, etc). YOU CAN, if you do it the correct way!! I can help.
You’ve worked hard over the years to put money into an IRA and/or 401K (yes, we may be able to use your 401K as well), so don’t give up without a fight as the government continues to print money out of thin air. Every time they do, your IRA is the one that suffers. Call me at 808-216-7300 – I can help.