Investing In Real Estate With Your IRA
As you know, real estate is at a 30 year low right now in many markets. Recently all over Wall Street Journal, New York Times, and countless other publications there have been stories about big Wall Street companies jumping in and buying real estate rather than stocks… because they know they can get a better return.
So, why are most Americans still trusting their own retirements… IRAs… 401ks… with the stock market?
Answer is, they don’t know any better.
Before we dive into the good stuff… remember, we are not financial advisors and by no means should this guide be meant to act as financial, tax, or legal advice. It’s for informational purposes only. Consult your own professional advisors before you make any financial choices like this.
The Self-Directed IRA for Real Estate
There’s something called a Self-Directed IRA. They’ve been around for a while… and in the past several years lots of people have realized that their IRAs aren’t earning them a darn thing (sometimes even losing money). So, those people (maybe this is you) have started to look for other ways to earn better returns with that same IRA.
Enter the “self-directed IRA”.
A self-directed IRA is simple. It’s a retirement account that has the same tax benefits as a normal IRA… but, you have more flexibility in deciding what you want your IRA to be invested in.
You can invest in…
- Real estate (commercial, income generating rental property, rehabs, etc.)
- Promissory Notes secured by mortgages (i.e. – private lending)
- Tax lien certificates
- Limited partnerships
- Sub-C corporations
- Real estate options
- Some types of precious metals
- … and the normal investments like stocks that your normal IRA can invest in
Basically, this opens it up so you can buy investment real estate with your IRA… or be a private lender in real estate.
Are There Restrictions?
Yes, there definitely are. There are restrictions on what you do with the real estate if you buy and hold… what types of precious metals… and often times the “custodian” of the SDIRA has restrictions on what they think you can and should invest in.
A custodian? Whats that?
Self-Directed IRA Custodians
The US Government created the SD-IRA loophole to help investors take more control over their investments while at the same time still getting the tax benefits. But, at the same time… they don’t want people setting up these SD-IRAs and just doing whatever they want.
So there is a barrier that they have to have in place… and thats the custodian.
The custodian is usually the Self-Directed IRA company who you have your IRA with. They act as the “go between” when you’re going to make an investment. Many custodians have guidelines on what you can invest in, how long it will take for you to actually make your money work for you once they approve the investment… etc. Some custodians are more passive… and let you actually have a checkbook where you can write checks from your SD-IRA to make investments.
You should do your homework and find the custodian thats right for you. Here’s a few that we know and respect.
What To Ask A Self-Directed IRA Company Before You Work With Them
Before you sign on with a SD-IRA company… ask them a few key questions.
- What are your fees?– Fees can vary wildly. Some charge an annual fee based on the value of the account, some charge an annual fee, some charge large setup fees, etc. Find out what works for you. But, the idea is that by being able to invest in real estate with your IRA… you’ll more than make up for the fees you’re paying with your higher returns.
- What’s the process for approving an investment?– Some companies can take up to 30 days+ to fund an investment after you send it in for approval. Some SD-IRA’s give you what’s called “true checkbook control”, where you actually get a checkbook where you can write checks from your IRA account… which gives you immediate access to the funds (i.e. – to close a deal quickly). Checkbook control usually is a tad more expensive to set up than an IRA account that requires all investments to go through the sometimes lengthy custodian approval process, but again… find out what’s best for you.
- Are there any restrictions on what I can invest in? I want to invest in real estate and make private loans.– Some SD-IRAs with larger more traditional companies like Schwab and SmithBarney put restrictions on what your account can invest in. Some don’t allow real estate… while others do. Just ask.
- Is my retirement account eligible to “roll over” into a SD-IRA?– Not all retirement accounts can be rolled over into a self-directed IRA. Most IRAs can be… and even some 401(k)s can be. Just ask your financial advisor and ask the representative at the SD-IRA company you’re working with.
- How long will it take for my account to be up and running and have funds available for investment?– Some people wait way too long to get this process rolling. If you know you want to use your IRA to invest in real estate… get the ball rolling on getting it rolled over into a SD-IRA account asap. Some companies may take weeks or even over a month to have your account setup complete and ready to invest. So, don’t wait until you’ve found a great real estate deal to get started… get started today so your funds are ready to invest when you need them.
Getting Off The Sidelines And Getting Your Money Working For You
If you feel a self-directed IRA may be a great way for you to invest a portion of your retirement in things you know (rather than the unpredictable stock market)… then dive in, take some time to educate yourself on the pros and cons of a SD-IRA (those websites I put above are a great place to start. They have all kinds of resources to learn more about self-directed IRAs and how you can use them to invest in real estate).
Looking To Participate In The Real Estate Market To Earn Solid Returns On Your Hard Earned Dollars?
If you’ve been wanting to diversify your investments and participate in the real estate market with a trusted company, this page will help you understand your options in passive or semi-passive investing… including the option of Private Money Lending in the Fresno area and all Throughout the CentralValley.
What Is Private Money Lending?
A private money loan is a loan that is given to a real estate investor, secured by real estate. Private money investors are given a first or second mortgage that secures their legal interest in the property and secures their investment. When we have isolated a home that is well under market value, we give our private lenders an opportunity to fund the purchase and rehab of the home. Through that process, the lender can yield extremely high interest rates – 4 or 5 times the rates you can get on bank CD’s and other traditional investment plans.
Essentially, private money lending is your opportunity to become the bank, reaping the profits just like a bank would. It’s a great way to generate cash flow and produce a predictable income stream – while at the same time, provide excellent security and safety for your principle investment. You can do what the banks have been doing for years…make a profitable return on investments backed by real estate. There is no other investment vehicle like it.
This is not a solicitation or offer of securities. Investment in out company is offered only to qualified investors through a written Investment Agreement or Private Placement Memorandum.
The private money lending transaction process from start to finish.
How Are Investors Protected?
Put yourself in the position of a bank by directing your investment capital, including retirement funds to well-secured real estate mortgages. Mortgages have ultimate safety because if default occurs, the bank (you) can recover the investment as the first lien holder on the property.
Each property is put through a rigorous evaluation process in order to assess the profitability before the property is ever purchased. We only want to make sound investment decisions. For your protection you are provided with the following:
- Mortgage or deed of trust is recorded at the courthouse
- Fire and hazard insurance on property
We conduct a title search of the property to ensure the property is free and clear. For a rental investment with a long term note, hazard insurance will always be kept on the property. You’ll be named as a mortgagee and notified if the insurance was not kept current. In the event of any damage to the property, insurance distributions would be used to rebuild or repair the property, or used to repay you.
The Private Lender Process:
Our approach is to purchase distressed properties that are well under market value usually 35%-55% below After Renovation Value (ARV). These properties are sometimes renovated and sold to retail buyers and landlords. Other times they are simply wholesaled to other rehabbers, investors and wholesalers.
Our Due Diligence:
We follow strict guidelines established by our team to ensure that the properties we purchase will produce great returns for our company as well as our investors. Every property we locate will go through a very detailed due diligence process. Some criteria that we consider:
- Location – every property purchased will be in a location where there is a high volume of purchases
- School District – we understand the importance of a school district when a buyer has children
- CMA – A Comparative market analysis is done by our team
- Purchase Price based Upon % of ARV [After Repair Value]
- Condition – Overall condition of the property, including mechanicals and structure
How We Buy Real Estate:
Equity is built into the purchase of the home, where we are buying 35-55% below retail value – this creates instant equity at purchase. In a typical transaction we cut out the middleman cost, such as: commissions, mortgage broker fees, loan fees, and our attorney costs are also lower because there is less work for them to review.
Because of our buying strategy, we are able to offer our buyers a fully renovated home at or below everything else in the neighborhood. We walk away from hundreds of “close” deals that do not meet our specific buying criteria and simply won’t buy unless it makes sense for everyone involved.
The process is simple. We find an extremely undervalued property we want to purchase – and once you give us the green light, we borrow the funds from you to purchase and renovate the property. At closing, you receive a mortgage on the home along with other important documents. Next stage is the property renovation. Once the renovations are complete (typically 3-6 months depending on the size of the project), we’ll list and sell the property. When it’s time for closing, you’ll receive your principle plus 10% interest payment. It’s just that simple! The goal is to keep turning that money for you and keep you making substantial profits so you keep coming back to us – building a long term mutually beneficial relationship.
We have established a good reputation with various local and national: banks (REO Departments), asset management companies and groups, auction houses, probate and divorce attorneys and a large network of investors who at any time may be ready to retire and liquidate their assets.
Think About It…
Do you want to make extra money?
Do you have under performing investments?
Do you invest in the stock market?
Do you have cash?
Do you have interest in real estate but don’t want the hassle?
Four easy steps to invest:
- Define your investment details
- Time Frame
- Payment Terms
- Position you funds for availability
- Receive details of investment opportunity
- Wire funds for closing