{"id":11063,"date":"2017-04-25T12:14:26","date_gmt":"2017-04-25T16:14:26","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=11063"},"modified":"2020-11-03T16:25:40","modified_gmt":"2020-11-03T21:25:40","slug":"buying-foreign-real-estate-ira","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/buying-foreign-real-estate-ira\/","title":{"rendered":"Buying Foreign Real Estate with your IRA"},"content":{"rendered":"
If you want to protect your retirement account from risk, and diversify out of the United States, buying foreign real estate with your IRA is one of the best options available. Returns are generally higher abroad and foreign real estate in an IRA gives you an asset that can\u2019t be seized and whose value is not linked to the US dollar or the US markets.<\/p>\n
Most IRA real estate investors are attracted to foreign property because of the lower investments required, higher returns, improved appreciation, lower management costs, and the idea that they will distribute that property to themselves upon retirement and have a home abroad.<\/p>\n
The fact that your retirement account is protected from creditors and the IRS is a side benefit for many buying foreign real estate with their IRAs. And don\u2019t forget about the fact that foreign real estate is not correlated to the US dollar or markets, thus a solid diversification play.<\/p>\n
With that in mind, here\u2019s how to buy foreign real estate with your IRA<\/strong>.<\/p>\n In most cases, the first step in investing your IRA in foreign real estate is to move it from your current custodian to one that allows for international transactions. Your current custodian probably makes money selling you investments and doesn\u2019t want you to invest abroad. So, you need to move your account to a firm that specializes in foreign transactions.<\/p>\n You\u2019ll be making a transfer to the new custodian and not a rollover. The rollover rules changed in 2015, making this method inefficient for most retirement accounts. You can make as many transfers (from custodian to custodian) as you like with no tax consequences.<\/p>\n Next, you need to decide how you want to hold the investment. You can instruct your custodian to make the purchase as a self-directed account or you can set up an offshore IRA LLC and make the investment yourself.<\/p>\n If you plan to make only one investment, it will be less costly to do that as a self-directed account through your custodian. If you\u2019ll make multiple investments, or want maximum asset protection and diversity, then you should set up an offshore IRA LLC.<\/p>\n If you go with the custodian managed option, be sure to select a custodian that will agree to make the purchase for you. A self-directed account means you can \u201cdirect\u201d the custodian or request he makes certain investments. If he feels it\u2019s not in the best interests of the IRA, he can refuse.<\/p>\n The reason they might refuse is that they can\u2019t perform the necessary due diligence on the foreign property. They may also have an issue with collecting rents, etc. If any of the many IRA\u00a0 rules are broken, or the investment goes bad, the US custodian will have some liability.<\/p>\n With an IRA LLC, the custodian makes only one investment. He transfers your retirement account into the LLC\u2019s bank account. From there, you make the investments. You make all the decisions and are the ones bound to follow the IRS rules.<\/p>\n This also means that the custodian has no control over your LLC. He\u2019s not a signer on the bank account and can\u2019t force you to bring back the money to pay a creditor. All of the decisions, rights, responsibilities, and liabilities are on you, the manager of the offshore IRA LLC.<\/p>\n If you go the LLC route, you need to spend some time getting familiar with the various IRS rules.<\/p>\n The most basic is to treat the IRA as a professional investment advisor would. Don\u2019t borrow against it, don\u2019t receive a benefit from your investments, and always make decisions that are in the best interest of the account.<\/p>\n For those investing their IRAs in foreign real estate, there are three primary rules:<\/p>\n The first two rules are simple enough. The third on UBIT needs some explanation.<\/p>\n When you buy foreign real estate in an IRA with a mortgage, some of the profits generated will be \u201cUnrelated Business Income\u201d and you\u2019ll pay Unrelated Business Income Tax to the US IRS. UBI is taxed at about 35% and applies to both rental profits and capital gains. I hope you\u2019ve found this article on buying foreign real estate in your IRA to be helpful. For more information on setting up an offshore IRA LLC and suggestions on offshore investments for your retirement account, please contact us HERE<\/a>. Here are a few articles I’m pretty sure you will love:<\/strong><\/p>\n Early Estate Planning to Avoid a Huge Headache Later<\/a><\/strong><\/p>\n\n
\nIn order to avoid this 35% penalty for using leverage in the purchase of the foreign real estate, you can setup a UBIT blocker corporation. For more on this, see: Using Leverage in an IRA Offshore<\/a>.<\/p>\n