GENERAL QUESTIONS
REAL ESTATE IN YOUR IRA
USING A SELF-DIRECTED SOLO(K) TO INVEST IN REAL ESTATE
General Questions
HOW LONG DOES IT TAKE TO GET STARTED?
Plan on anywhere between 15 – 45 days before you can make your first investment. You’ll need to identify what type of investment you’re interested in, determine what type of self-directed account to establish, set up the account then fund the account. Depending on what company currently manages your retirement account, it could take an extra week or two to transfer funds.
WHAT TYPE OF ROI CAN I EXPECT?
Of course, every type of investment is different and there is risk involved with any type of investment. But generally, we don’t present an opportunity unless it projects a +10% return.
WHAT’S THE FIRST STEP?
The first step is always education. You could begin by doing research on self-directed IRAs on your favorite search engine or read the articles we’ve posted in our News section. If you decide to explore further, go to our Get Started section and sign up for a free consultation. From there, we’ll help determine what the right real estate investment is for you.
WHY SHOULD I TAKE MONEY OUT OF THE MARKET AND PUT IT IN REAL ESTATE?
We don’t advocate taking all of your money out of the market and putting it into real estate. We still believe in the long term viability of the market to generate wealth. What we advocate is diversification of assets…TRUE diversification…not just multiple types of mutual fund ownership. Contact your CPA or CFP for recommendations and rationale on why your assets should be diversified and what your target percentages should be.
HOW DOES FREEDOM GROWTH PRESENT INVESTMENT OPPORTUNITIES?
Freedom Growth works with each client to develop an personalized retirement plan. Where do we start? With you, the client. Each client has a different situation so each plan is customized to meet that clients’ needs. Click here to see a sample plan.
Real Estate in your IRA
IS OWNING REAL ESTATE IN YOUR IRA LEGAL?
Yes! The rules governing what an IRA can invest in only specify where someone cannot invest and have been in effect since IRAs were created in 1974. There are three investments not allowed within IRAs: collectibles, life insurance, and capital stock in an S corporation.
WHY HAVEN’T I HEARD OF THIS BEFORE?
The primary reason is that most people hold their IRAs with financial institutions whose business models revolve around making and getting paid on market-traded investments and not in investments like real estate, private equity and other “alternative” options
DOES THIS REPLACE MY CURRENT 401(k) AND WILL I LOSE MY EMPLOYER MATCH?
Absolutely not. The self-directed account you open is in addition to, not instead of, your current 401(k). You’ll still continue to contribute as much as you can, and certainly as much is needed to get the full company match, and transfer funds into your new self-directed account when the time is right.
WHAT KIND OF REAL ESTATE CAN I OWN?
Real estate is a very broad asset class. Your IRA can buy raw land, commercial property, residential (e.g., rental) property, real estate options, as well as extend loans (e.g., first and second mortgages), secured by real estate with your IRA, to unrelated parties.
ARE SMALLER INVESTMENTS POSSIBLE?
They are. The easiest way is to join forces with other investors and own property either through a created LLC or through a TIC (tenancy in common.) Your IRA can also borrow money from certain banks to purchase real estate. Each situation has certain pros and cons that need to be considered based on your situation. Freedom Growth can present the facts and make sure you’re getting the right answers to the right questions.
WHAT’S THE MINIMUM INVESTMENT?
Most of the investments we’ve found require a minimum of $25,000, some start as low as $1,000. Opportunities also exist to group funds with other like-minded investors.
CAN I USE PROPERTY I PURCHASE?
No. IRS Publication 590 specifically prohibits personal use of property acquired through an IRA. You can purchase an investment property now, manage it as a pure investment property, then convert it to a vacation home once you start taking distributions from your account. For specific rules and guidelines, please consult a CPA who has knowledge on IRA real estate investing. If you don’t have one, Freedom Growth is more than happy to provide a referral.
Using a Self-Directed Solo(k) To Invest in Real Estate
What is a Solo(k)?
The Solo(k) is a tax-qualified retirement plan that enables contributions up the maximum annual amount on a tax-favored basis for solo business owners. In 2009, the maximum is $49,000 for someone under age 55.
Am I eligible?
If you are a solo business owner with no other employees, you are eligible. If you and your spouse own a business with no other employees, you are also eligible. Other businesses may be eligible. Make sure you check with your CPA or financial professional about your eligibility.
What are the benefits of a Solo(k) vs. a SEP IRA?
A Solo(k) contributions consist of two parts: Employee and Employer, which allows most solo business owners to contribute significantly more than a SEP IRA. Both are capped at $49,000 per year in 2009. But you can make that contribution with $163K in business income in a Solo(k) and need $245,000 of business income with a SEP IRA. Also, the Solo(k) has a Roth component that has NO income limitations. That allows you to contribute to a Roth using after tax funds and any earnings may be withdrawn at retirement tax-free! You may also take a loan from a Solo(k), but cannot from a SEP. Lastly, financed real estate investments in a Solo(k) can qualify for an exception to the tax on unrelated-debt financed income, but the same investments in a SEP may have tax if you take a loan.
Why should I self-directed my Solo(k)?
Limiting your hard-earned retirement savings to stock market investments is foolish. Take advantage of the opportunity to truly diversify your retirement portfolio by opening a Solo(k) account with a reputable, experienced custodian that allows you to direct your investments. Then take a look at the best investment you can make today: real estate!
What are the real estate investment opportunities?
There has never been a better time to invest in real estate. Opportunities exist today to meet the needs of all investors. The trick is to establish an investment plan based on your retirement goals. Then choose an investment that provides the best fit. Here are some examples:
- Residential Income Properties – buy low, sell high and generate income from rent
- Multi-family Income Properties – apartments generate huge profits
- Go Zone Investements – opportunites created along the Gulf Coast due to Hurrican Katrina
- Land – owning land in the path of development is a good long-term investment
- Retirement/Vacation Properties – buy your retirement home now while it’s on sale
- Trust Deeds – secured loans that produce fixed returns on investments
- Tax Liens – purchasing county tax liens secured by real estate
- Real Esate Notes – a ‘paper investment’ in real estate without the hassles of actual home ownership
How do I learn more?
The professionals at Freedom Growth can show how to make the most of your Solo(k) by investing in real estate. We’ll handle all the details making the process quick and easy. Visit our web site or call us for a free initial consultation.
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