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.
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