International Real Estate
Market Is Hot Option for IRA Investments
By Sharon Faiola Petersen, Guidant
Financial Group
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November/December
2007
| 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.” |
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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. “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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