Is it legal to purchase
non-standard assets such as
real estate by using my IRA?
Without question! The
Employee Retirement Income
Security Act of 1974
(otherwise known as ERISA)
essentially passed the
responsibility of retirement
saving from the employer to
the employee. IRAs were
created in 1975 to provide
individuals a chance to
direct where their
retirement funds were
invested. Rather than
delineating which
investments are allowed, the
IRS code instead identifies
which investments are not
permitted under these laws.
There are only two types of
investments excluded under
both ERISA and IRS Codes:
Life Insurance Contracts and
Collectibles (such as works
of art, rugs, jewelry, etc).
Refer to Internal Revenue
Code Section 401 (IRC §
408(a) (3)).
If my brother is not a
disqualified party, can I
buy a house and let him rent
it from me?
Theoretically, yes. Your
brother is not a
disqualified person.
However, as in the scenario
mentioned above, if he
occupied a rental property
owned by your IRA and could
not make the payments, you
could run afoul of the
exclusive benefit rule. This
could cause your IRA to have
participated in a prohibited
transaction. It is important
that you treat every
investment the same, to
benefit your IRA and only
the IRA.
Can my IRA buy real estate
that I currently own?
Even though there are
companies which claim you
can, this is strictly
forbidden under IRC § 4975.
There are many great real
estate transactions
available so do not put your
retirement account at risk
by engaging in a
"self-dealing" transaction
such as this.
Can I use leverage to buy
real estate?
Yes! Leverage is a very
powerful tool when
purchasing real estate.
However, there are unique
requirements when using a
self directed IRA and
leverage. The "prohibited
transaction" rules state
that you as a disqualified
person cannot extend credit
to an IRA or IRA asset. This
means that if your IRA gets
a loan on a piece of real
estate – you cannot
personally guarantee the
loan. This would be viewed
as extending credit. Refer
to IRC § 4975(c) (1) (B)
for more specific
information.
An IRA must secure what is
called a non-recourse loan.
This type of loan is given
solely based on the
property. A bank who lends
money this way is lending
money based on the
investment rather than
lending to a borrower who
has a great credit score.
Because banks do not have
any recourse against the IRA
or IRA holder, they
typically require a high
down payment. In the past we
have seen banks require 50%
down with marginally high
interest rates. Banks are
not in the business of
foreclosing on homes, so
they need to make sure if
your self-directed IRA
cannot make the payments
that it is in a protected
position and will not lose
its investment.
To rectify this type of
situation, facilitator has
built a working relationship
with a national banking
institution which will
require as little as 30%
down with very reasonable
interest rates for
non-recourse loans in all 50
states.
Can I be the property
manager for real estate held
by my self-directed IRA?
If you have a "traditional"
self-directed IRA then the
answer is no. Using our
Self-Directed IRA LLC, you
can manage the property,
collect the rent, screen
tenants, perform general
maintenance, and more. This
can save your IRA hundreds
of dollars each month and
ultimately provide more
investment capital for
ongoing investments.
Can I mix personal funds
with IRA funds to purchase a
piece of real property?
Yes, if it is structured
correctly. You must be very
careful to whom you are
listening. The prohibited
transactions code prohibits
an individual from using
personal or IRA cash to
benefit the other. This can
be easily violated through
"formation issues". If you
are considering using your
personal funds to invest in
real estate with your IRA
either through
Tenant-in-Common or a
Partnership Entity, consult
with our group first. Do not
be a test case for an
inexperienced professional.
How do I find a realtor,
CPA or mortgage lender in my
area who knows about
self-directed IRAs?
Costa Rica Retirement
Vacation Properties
has been doing self directed
IRA's for years. We are
aligned with the best
sources for a seamless and
careful execution of these
programs.
Once we are contacted our
people will identify the
best course of action for
you and you will connect you
directly with our
professionals who handle
your specific. You will deal
with one person and will be
walked through the entire
process very smoothly and
properly. We can be reached
toll free at
1
888 581 1786. Ask
for the IRA center.
Proper use of self directed IRA can be very helpful as well. Go
here for more and free Webinar.
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