Author Archive
Are You Secure? Three Protections of the Real Estate IRA
Posted on December 11, 2015 byHow secure is your retirement nest egg? If you own a Real Estate IRA, you might have an idea about what kinds of protections your retirement income has; but if you’ve never heard of the things, now’s as good a time as any to learn what your options are.
While many people associate an investment in real estate with speculation, the truth is that real estate can be a highly secure way to ensure that you have enough for retirement. Not only does real estate provide an opportunity for growth, but it’s capable of providing you with a stable income that you can use when you need it the most. And with the following three protections built right in to the Real Estate IRA structure itself, you’ll see that these investments can be much more secure than you originally thought. Read More→
Invest in Real Estate with Your 401(k)
Posted on November 11, 2015 byMany people want to invest in real estate “if I could only find the cash for the down payment on a property or two.” But for many would be investors – the answer to getting started in direct real estate investment is right under their nose: You can use a self-directed 401(k) to invest in real estate.
Techniques
For Employees
If you don’t own your own company (so you can become the sponsor of your own 401(k) plan, you have a couple of options:
Borrow. If your plan allows, you may be able to borrow up to $50,000 or 50% of your account value (whichever is less) to invest in real estate in a taxable account. If you go this route, understand you only have five years to repay the loan. Otherwise it’s considered a taxable distribution and if you are under age 59½, may generate penalties to boot. Read More→
Why Nervous Investors Can Benefit from Real Estate IRAs
Posted on October 22, 2015 byWhen stock markets are volatile, investors (rightly) get nervous. After all, many people have most of their wealth in the stock market. If the stock market goes down, then they see their wealth shrinking…and for people close to retirement, this is a scary prospect indeed. But it doesn’t have to be this way. With Real Estate IRAs, many people learn that retirement income doesn’t have to depend on the quality of the Dow Jones Industrial Average. Instead, retirement income can depend on your strength as an investor, and the wisdom it takes to know what true diversification really is.
And just what is that “diversification” we’re talking about? Some people will tell you that investing with diversification means having the right mix of stocks and bonds, of having stocks split up into small cap, medium cap, and large cap equities. But all that really means is that you’re invested in two different investment categories, all the while ignoring all of the very real possibilities for retirement income that are out there.
If you’re sick of feeling nervous every time that stock ticker heads into the red, then it’s time to broaden your horizons as a wise retirement investor and look into what diversification really means. Read More→
Does Your “Investment Personality” Line Up With Real Estate IRAs?
Posted on September 17, 2015 by“Investment personality?” you might ask. “What’s an investment personality? I want to make more money than I have. That’s my investment personality.” Okay, we’ll admit it: the idea of an ‘investment personality’ might not seem to have a lot of merit at first—until you realize that you do have a set of clear priorities and preferences based on your experiences. To one person, Real Estate IRAs—for example—might fit perfectly in line with their investment personality. For someone else, a Self-Directed IRA of a different sort might be more appropriate.
The question becomes: what exactly is your investment personality, and how can you know it? Let’s look through some basic questions to find out exactly what yours is – and whether or not Real Estate IRAs are the right match for you.
Basic Investment Personality Questions: A Short Quiz
Your investment personality might not be the same as your normal personality. Some people who find themselves perfectly risk-averse and introverted in their personal lives might enjoy a riskier approach to their investments…and vice-versa. Let’s take a few moments for some questions that may just reveal some things about your investment personality: Read More→
Three “Golden Rules” of the Real Estate IRA
Posted on August 10, 2015 byMany of us are aware of the potential for real estate to function within our portfolio. Not only do we believe in real estate as an investment, but we know that over time, it tends to go up in value – there is, after all, only so much land to go around! But what happens when you incorporate real estate into your retirement portfolio? Do the rules change when you’re running a Real Estate IRA?
Truthfully, many of the same principles of real estate hold true when you’re investing in real estate from within a Real Estate IRA. But that doesn’t mean there aren’t some other things to be aware of – this is, after all, a different type of investment account.
Even so, you’ll find that investing in real estate through a Real Estate IRA isn’t only intuitive, but can be just as intuitive as investing in real estate from a “general investment” perspective. We’ve put together three “Golden Rules” here to not only demonstrate some of the similarities but some of the differences in investing in real estate for short-term growth and investing in real estate for retirement: Read More→
How To Get Your Real Estate IRA Purchase Offers Accepted
Posted on July 6, 2015 byBuying properties for your real estate IRA is competitive. That’s especially true for investment properties, where it’s critical to buy properties at an advantageous price. Real estate investors must be more price-sensitive than retail buyers and owner-occupants.
But these days, It’s routine in many markets for buyers to encounter competitive bidding situations: Where multiple buyers are making offers on a given property at the same time.
According to data from the Redfin Corporation, 61 percent of offers from their agents were facing competition from other buyers in March of 2015. This number has bounced around between 45 percent and 75 percent – the high coming in early 2013. But the number seems to have made a substantial uptick in recent months, zooming from the 45 percent low at the end of 2014 all the way back up to 61 percent in just a few short months.
In San Francisco, 94 percent of offers are facing competitive bidding, according to the brokerage company’s agents. Read More→
Real Estate IRA Update: Friendliest States for Landlords
Posted on June 8, 2015 byAll men are created equal. But not all states, as far as Real Estate IRA investors are concerned. This is especially true for those who hold rental property in their Real Estate IRAs. Naturally, every state tries to strike a balance between the rights of renters to privacy and stability and the property rights of landowners. And some states strike that balance in a way that is much friendlier to landlords than others.
The key issues are each states’ landlord-tenant laws, bankruptcy protection measures and overall friendliness to debtors vs. creditors, and property tax levels.
Arkansas
Arkansas is the only state in the country that does not recognize an implied warranty of habitability. This means that landlords have no obligation to maintain homes or make repairs. But the law forces tenants to pay rent, anyway. Most other states have at least some provision for rent withholding or partial payment in the event that the landlord does not ensure at least a functionally livable property.
Arkansas allows landlords to commence with eviction procedures once the tenant is just a single day late with rent. Read More→
The Best Markets for Real Estate IRA Investors
Posted on May 11, 2015 byIn the real estate world, it’s all about income. Real estate IRA veterans know that if prices get too far ahead of rents, driving gross yields down, bad things happen. You don’t want to get caught up in the next bubble, trying to sell over appreciated real estate to some greater fool. Any time your entire investment thesis for residential real estate relies on future price appreciation without regard to income generated, you are on hazardous footing.
Smart real estate investors, then, try to maximize their yields on investment – that is, the amount of cash that comes in as a percentage of the amount invested.
Of course, individual properties vary widely when it comes to the cost of repairs and renovations needed to get them to work. But we can get a good idea of the health of a rental real estate market just by looking at gross yields – that is, income divided by the total current property value.
From that perspective, the market for real estate IRA investors looks strong indeed. RealtyTrac recently published its 2015 Residential Rental Market Report, aggregating rental income and price data from hundreds of metro markets, nationwide. The report comes on the heels of another report from Zillow.com reporting that rents have been increasing strongly, even outpacing inflation and household incomes. That’s not great news for renters, unfortunately, who have seen their fraction of incomes absorbed by housing costs increase from 25 percent to 30 percent in the space of just a few years. But it’s good news for landlords, who are reporting solid returns on investment in the vast majority of markets, nationwide. Read More→
Financing Property or Buying a Retirement Home: Why Using a Real Estate IRA Makes Sense
Posted on April 7, 2015 byPlan for retirement
What should you do with your Real Estate IRA? If you are a Baby Boomer, you may want to consider using a Real Estate IRA to purchase that dream home before you hit retirement. Then, when you reach age 59 ½, you can take the home as a distribution and begin enjoying your new retirement home. Remember, you may not use this home for your own personal use until you reach 59 ½ and take the home as a distribution.
One important point that people forget when talking about taking a home as a distribution is the taxes due on distributions. If the home was held in a Traditional IRA, then taxes will be due on the amount of the distribution (the appraised value of the home) in accordance with the individual’s tax bracket. That’s why most people recommend using a Roth IRA for this strategy. With a Roth IRA, taxes are due at the time contributions are made, after that all profits grow tax-free and since you paid the taxes at the time the contributions were made, distributions are tax-free as long as you have reached age 59 ½ and the account has been open for at least 5 years. Read More→
Doing Renovations Within A Real Estate IRA? Protect Your Investment
Posted on March 9, 2015 byBuying a fixer-upper at a discount and bringing it up to par to rent or sell is a proven business model, in or out of a Real Estate IRA. Renovation and construction projects are just part of life for the serious Real Estate IRA owner. Even if you don’t particularly think of yourself as a renovator and you’re just relying on rental income with no ‘pop’ in price from your renovations, sooner or later you’re going to have to replace the roof on that property. In which case you’re going to have contractors crawling all over your house, tearing it up.
That’s a dangerous time for any property owner, and Real Estate IRA owners are no exception. Any time you have construction workers working on property you own, in or out of the Real Estate IRA, you expose yourself to risk and potential liability.
Protecting your Real Estate IRA investment
Here are a few principles to keep in mind to protect your IRA:
1.) Working on it yourself? Don’t do it. You are a prohibited individual and you are not allowed to provide services to your IRA. Doing so can result in penalties and even the disqualification of your IRA. Plus a G.C.’s experience, contacts, leverage with subcontractors and general liability insurance can prove invaluable in seeing the project through to successful completion. Read More→
Real Estate IRAs – The Most Common Questions Answered
Posted on February 9, 2015 byIn this business, in client meetings, telephone consultations and seminars, we find ourselves answering the same common questions about real estate IRAs over and over again. So we thought we’d compile them here, in one convenient list.
1. Is it legal to hold real estate in an IRA?
Absolutely. The U.S. tax code gives taxpayers broad latitude to hold just about anything they want within an IRA. The only restrictions as far as the types of allowable investments are as follows:
- You can’t own life insurance in an IRA.
- You can’t own gems or jewelry.
- Any precious metals you own in an IRA have to meet certain standards for purity and consistency. See our exclusive Guide to Gold and Precious Metals IRAs for more information on this topic.
- You cannot own alcoholic beverages within an IRA.
Flippers Earning Record Profits
Posted on January 6, 2015 byThe market’s never been better for house-flippers. That’s the word from a recent report from real estate data and information clearinghouse Realty Trac.
Flippers accounted for 26,947 home sales in the 3rd quarter of 2014. That represents roughly 4 percent of all single-family home sales in the U.S., according to Realty Trace – a five-year low and close to the long-term average historic levels. Those figures are down somewhat from 4.6 percent in the preceding quarter, and even more from the 5.6 percent of single family residential home sales accounted for by fix-and-flippers in the year-ago period, according to the Realty Trace U.S. Home Flipping Report.
So flippers represent a somewhat smaller percentage of the market than they used to. But they’re getting their prices: The average fix-and-flip deal averaged a gross profit of nearly $76,000 per home. That’s the highest average profit per flip in history.
Breaking the numbers down a bit further: Read More→
Why Self-Directed Retirement Investing is More Important Now than Ever
Posted on December 5, 2014 byWhen most people think of retirement they think of long walks on the beach, golf, sitting around the house enjoying their grandchildren, and other happy thoughts. If you look at how most investment and annuity companies advertise, that’s exactly the dream they’re pushing. That advertising and marketing strategy has worked very well at getting Americans to fork over their hard-earned money to money managers, brokers and other financial professionals for them to underperform the Index on their behalf.
The thing is, it used to be easier. For example, the long term average dividend for U.S. equities has been 4.4 percent, going back to the 1920s. Stocks are paying a dividend of less than half that figure now, at 1.9 percent for the S&P 500.
Meanwhile, investors are currently paying 20 times earnings and up for exposure to the stock market. The long-term average is closer to 15 times earnings. Your parents and grandparents were getting a much greater return on investment than you are likely to get going into retirement.
In the 1970s, you could easily buy bonds that generated 10 to 12 percent interest, without breaking a sweat. Money markets even generated some solid numbers north of 5 percent and up. Inflation was a factor then, but inflation moderated, finally, going into the 80s, when investors simultaneously enjoyed the beginning of one of the biggest bull markets in history. But that happened because dividends could be profitably reinvested and multiples were simultaneously expanding from the tough times of the 1970s. Read More→
Pre-Foreclosure Properties in a Self-Directed IRA
Posted on November 11, 2014 byFor those of you with an interest in real estate, yes, you can buy pre-foreclosure properties using a Self-Directed IRA. The same goes for other self-directed retirement accounts, including 401(k)s, SEPs, SIMPLE IRAs, and even Coverdell Education Savings Accounts and Health Savings Accounts, if your balances are large enough to make it work!
There are a number of advantages to using a retirement account to acquire these properties:
If your plan is to fix them up and flip the house, and you do this a lot, you may fall under dealer tax rules. That means that unless you are conducting your flipping activities within a retirement account, all your profits will be taxed as sales of inventory – and therefore subject to taxation as ordinary income.
Furthermore, outside of retirement accounts, those who are classified by the Internal Revenue Service as dealers lose their ability to defer capital gains under Section 1031 of the Internal Revenue Code concerning like kind exchanges. And furthermore, the income may also become subject to self-employment tax of up to 15.3 percent. Read More→
Self-Directed SEP IRAs – The No-Nonsense Retirement Plan for Real Estate Entrepreneurs
Posted on October 7, 2014 byIf it’s a combination of high contribution limits and downright simplicity and ease of administration you’re looking for, and you have significant cash flow coming from your own business, practice as an independent contractor or other earned income from self-employment, then the SEP IRA, including the Self-Directed SEP IRA may be the way to go.
How it Works
The SEP IRA, or Simplified Employee Pension plan, is an employer-funded, defined contribution pension plan available to businesses of any size, including single-employee corporations, independent contractors and self-employed individuals.
Entrepreneurs in each of these categories initiate a SEP IRA plan to cover all qualified employees. The plan sponsor then funds the plan on an equal basis for each covered employee. You cannot set up a plan to cover yourself alone, if you have other employees. You must contribute to the plan for all qualified employees, equally, across the board. However, this is obviously not much of a concern for independent contractors and for businesses owned and operated by a single employee or a husband and wife team. Read More→
The Ultimate Cheat Sheet on Self-Directed Real Estate IRAs
Posted on September 8, 2014 bySelf-Directed Real Estate IRAs are a powerful tool that allow for tax-free and tax-deferred profits. In some cases, capital gains taxes can even be avoided when investing within an IRA. Still many people are still unclear on how to transition from investing in real estate outside their IRA into investing in real estate within their IRA. We’ve compiled a cheat sheet summary in this article to serve as a reference tool.
The Account
First and most importantly, you need to open and fund a Self-Directed Real Estate IRA. This involves simply filling out an application which is quick and easy with American IRA [Hint: The American IRA staff will be standing by to help with this]. The second and most important part is to fund your new account. You can fund an account by making a contribution, transferring funds from another IRA, rolling over funds from another IRA, and/or any combination thereof. When transferring from another IRA, it is important that you follow up persistently with your prior custodian to make sure they move your funds in a timely manner [Remember: You are moving money “away” from them so they are in no hurry.].
Finding Assets
Once your account is open and funded, you are ready to find deals on those assets that you want to purchase. Before making an offer on that asset, make sure you review the list of prohibited assets to ensure that the asset you want to purchase is permitted. Prohibited assets include: life insurance, certain kinds of precious metals, art, alcoholic beverages, and collectibles. You also need to make sure you are not purchasing the asset from a prohibited individual including: yourself, your spouse, your descendants, your ascendants, nor their spouses or entities they own or control. Read More→
How to Add Real Estate to My IRA
Posted on August 7, 2014 byThere’s nothing out there that quite offers the unique advantages of direct investment in real estate:
- Tangible value
- Potential for substantial income from rent
- Potential for capital appreciation
- Effective safeguard against inflation
- Extensive availability of leverage
- Ease of borrowing against the asset for other investing
- Effective hedge even against economic collapse
REAL ESTATE IRA BASICS
The good news is, though, is that it’s quite easy to hold real estate – actual, tangible real estate – within your IRA, provided you adhere to a few basic rules. Read More→
A Self-Directed IRA Investor, a Realtor, or an Investor?
Posted on July 7, 2014 byHave you ever considered which of these options will bring you more money?
- Investing in real estate as a Self-Directed IRA investor
- Using your real estate knowledge to earn your living through commissions (real estate sales as a career), or
- Simply investing in real estate
The truth is that each option has its benefits though, as with any other investment, it is always good to diversify. This means that the best option would be to do “all of the above”.
We have met so many realtors who depend upon their real estate commissions to make a living. While realtors and brokers have a wealth of experience in real estate and while they have the unique privilege of seeing the homes coming up for sale before they are advertised, many of them are not real estate investors.
In our last articles, we spoke to you about educating yourself about Self-Directed IRAs so that you can increase your customer base to include Self-Directed IRA investors. In this article, we are going to take it one step further and encourage you to put your real estate knowledge to work for you at a whole new level. Consider for a moment that you can continue to collect commissions from your real estate sales and you can also use your real estate knowledge to purchase real estate. Read More→
Self-Directed IRAs and Real Estate – Part 2 of 2
Posted on June 9, 2014 byIn part 1 of this article, we talked about the steps realtors can take to attract Self-Directed IRA investors as clients. In part 2, we are going to speak about making it grow.
Once you are familiar with Self-Directed IRAs and you have perfected your follow-up process, you are in a position to run some unique advertising that is sure to generate a bunch of new clients. You simply run ads that say that you are a realtor who services Self-Directed IRA investors. I can tell you from experience that many Self-Directed IRA clients are wishing they had a realtor who actually understood the Self-Directed IRA investing process.
Keep in mind that current Self-Directed IRA investors are not your only source. When you are familiar with Self-Directed IRAs, you will be in a position to educate investors about a source of funds that they may not have previously considered. There is a wealth of investors out there that have money sitting idle in retirement accounts and our experience has shown that they are very happy to learn they have more funds available to invest with than they realized. We can also help you with this. If you have someone you have introduced to Self-Directed IRAs and you want them to have someone in the industry to talk to, we will be glad to discuss Self-Directed IRAs with them. We offer free consultations and can speak to them about their specific situation and how Self-Directed IRAs will work within that situation. Read More→
Self-Directed IRAs and Real Estate – Part 1 of 2
Posted on May 6, 2014 byAs many of you know, our CEO and Senior Vice President are also avid real estate investors. Their experience has proven invaluable in servicing our clients most especially in relation to real estate closings. What you may not realize is that our client base consists largely of people who are using their Self-Directed IRAs to invest in real estate. This is a win-win for both our clients and the realtors who are servicing those clients.
Even more promising for both groups is that the real estate market is perfect for investors. Prices are still relatively low and there is a surplus of homes available. So, you may be wondering how you can benefit from the Self-Directed IRA/Real Estate boom. The answer is simple…any one can benefit from this boom. Whether you are an investor or a realtor, there is plenty of opportunity to increase your wealth. In part 1 of this article, we will speak to realtors about what they can do to obtain new clients and generate more income by working with Self-Directed IRA investors.
The first and most important thing is to get educated about Self-Directed IRAs. Listen, before you think this is a sales pitch, hear me out. Self-Directed IRA investors have something very important, money. They have the funds to close the deals. Consider that for a moment and you will realize that means, in many cases, financing will not be a factor. As you know, financing often results in road blocks along the way that can prevent you from closing the deal and collecting your commission. The other thing that many Self-Directed IRA investors have is experience. They are familiar with the real estate process which lessens the chance of a delayed and/or failed closing due to a buyer’s inexperience. Self-Directed IRA investors are also great repeat clients. They buy numerous properties and the better their success, the more they buy. Read More→
