Many
real estate investors are side-stepping the local market by investing in
foreign real estate ... and they’re doing so with their IRAs.
Many American
investors wary of the U.S. housing industry are turning their eyes towards
distant shores. Overseas real estate is hot. Countries like China, Mexico
and Costa Rica are selling off prime properties to Americans discouraged
by their recent struggles within the domestic market. Some countries, such
as Argentina, France, Italy, Spain, Panama and Malaysia, have few or no
restrictions on foreigners buying real estate, and some countries are even
encouraging it. While properties in some pockets of the world are certainly
exorbitantly priced (think: French Riviera), others, like Malaysia and
Uruguay, boast highly affordable real estate in charming and picturesque
towns.
One way that
a growing number of investors are submitting to the lure of distant lands
is through the use of self-directed IRAs. These specially structured retirement
accounts allow account holders to personally direct their IRA investments
outside the stock market into more non-traditional investments like real
estate, tax liens, personal loans, etc.
Profits from
these investments are fed back into the IRA tax-deferred, just like returns
on stocks, bonds or mutual funds. (You can thank the Employee Retirement
Income Security Act of 1974 for that convenient benefit!).
“Many
investors are avoiding the stock market for investment opportunities that
allow for more individual control,” says David Nilssen, president and
CEO of Guidant Financial Group , a leading retirement account facilitator.
“One
of those areas is real estate, and, increasingly, foreign real estate.
A growing number of our clients report that they’re securing excellent
overseas land and rental properties with their self-directed IRAs.”
To set one
up, you should work with an “account facilitator” who specializes in self-directed
IRAs. Account facilitators offer structures that give the IRA holder checkbook
control of IRA funds, which means you can literally write a check on the
spot to make a purchase or investment. By contrast, traditional “IRA custodians”
allow foreign investments but charge a percent fee for each transaction
and then must coordinate the transaction.
“Our clients
find checkbook control to be extremely advantageous,” says Nilssen.
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“It
allows for the timely purchase of time-sensitive investments with the same
ease as a traditional checking account. This is especially beneficial when
buying in-demand real estate, foreclosures or auction property.”
With a self-directed
IRA comes the responsibility that every purchase/investment must be made
with the IRA in mind. You as the account holder are the “fiduciary” for
that IRA (almost as if you were the trustee for, say, your goddaughter’s
trust), so you are required by law to avoid any transactions that create
a conflict of interest. This means that real estate, whether purchased
domestically or abroad, must be for investment purposes – not something
that you or a close relative will live in. Feel free to rent it out, however,
and funnel that rent money back into the IRA. It’s a great way to make
your IRA grow while holding onto real estate you could even choose to occupy
after you’ve taken your age 59-and-a-half distribution.
Whether you
buy foreign real estate as a potentially lucrative investment or whether
you buy it as a means to secure a future retirement home, self-directed
IRAs can be your ticket to foreign lands!
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