Saturday, January 01, 2005

Investment Real Estate 

You CAN Use Your IRA to Invest in Real Estate in North Carolina

Your IRA, or individual retirement account, that self-funded retirement plan that allows you to contribute a limited yearly sum toward your retirement; taxes on the interest earned in the account are deferred, might like a vault in which you have put away (and then never again touched) certain bank accounts, stocks, bonds, or mutual funds. In fact, all your IRA money is
In one or more of the above and you would like to diversify.

Did you know that you can invest in real estate? You can invest in raw land, a house or a building -- even your retirement home. Think of your IRA as a dessert tray. You can stack it full of wonderful items. Besides the standard stocks, bonds and mutual funds, you could choose to include condos (used for investment) or eco-sensitive development properties.

Of course, you know there are excellent investment properties here in the Greater Asheville Area Mountains. So if you are one person who has decided to broaden your IRA portfolio, the Greater Asheville area is an excellent place to do it! In fact, EscapeHomes.com reports that ASHEVILLE, N.C. rates #1 for investing in second homes.

You cannot use IRA money to buy your own residence, or any other property in which you live. It has to be investment property. But when you retire, you can direct your IRA to turn it over to you as a distribution, at the then current market value. That’s quite a benefit.

Before discussing more about the pluses, let’s take a look at the challenges involved in investing in real estate with your IRA. First, you will have to create at least a portion of your IRA into a Self-Directed IRA. Second, while some investors feel pretty much on your own investing in a real estate IRA, if you take the time to find a real estate firm that understands the process and will work with you over a period of time, you are half way there.

I am with such a company. We can not only help you find excellent investment property, but can refer you to a team of professionals including a trustee and perhaps a management company if you will be needing to collect rents and maintain the property. After you have met with the trustee you select for your self-directed IRA, we can also refer you to several institutions inclined to open a self-directed IRA. Look next to sign documents to transfer designated portions of your existing IRA to your self-directed IRA.

I can and will help you locate and purchase property, refer you to a number of excellent real estate attorneys who specialize in investment real estate, and will be present throughout the course of the investment transaction, at which time the trustee you have selected will take title at your direction.

Simple Rules and Regulations Governing IRA Real Estate Investment Transactions

Properties must remain in the trust until distribution at retirement as with any other investment. You cannot manage the property. But your trustee can hire a third party to collect rents and maintain or improve the property, and rental profits must be returned to the trustee.

I know of a case where a real estate investor who planned to purchase property learned during his due diligence period that the IRS would allow him to use his land or building investment, but not while it is IN his IRA. Could he take it OUT of his IRA on occasion, and use it? YES, but only for a certain period of time and then with various restrictions.

He could buy a second home, rent it to someone else, put the rental income in his IRA, but not live there. When he retired, he could take the house as a distribution. Then he could move in on a permanent basis. In the meantime, he could NOT rent the house to his spouse, grandparents, parents, children, grandchildren, etc., but he COULD rent it to his brother or sister!

REAL Pluses of Investing in Real Estate with Your IRA

Now, on to the benefits of using your self-directed IRA for real estate investment. You KNOW for sure WHERE it is! This may sound obvious, but think about this— you actually can visit your investment properties, see them, walk on them (if they are land) and touch them. One of my clients told me she loved the idea of being able to have a picnic on her investment. She also liked the idea that there is a huge potential for cash stream as market appreciation does come into play with investment properties. Of course, one could also leverage this investment if one chose.

You can use an IRA for real estate investments whether you are a “hands-on” kind of person or an investor who prefers relying on someone else's expertise.

Going back to the dessert tray analogy, I recommend that you take the time to decipher the KIND of goodies you will select. Solid research into self-directed IRAs prior to making selections is part of what makes this type of investment especially intriguing. Be prepared to do your homework on this. A case in point: As mentioned, to buy real estate you must find and select an independent administrator to serve as a trustee or custodian. Homework: Interview several experienced professionals before making your final selection. Usually we suggest to our clients that the IRA is best when used for true investment property. Here is where your accountant or financial consultant can be a big help. S/he can do a good bit of the homework for you in terms of research.

Contact me at invest@janeAnne.com to discuss broadening your IRA investment plan.

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