Some people think with the unstable, or declining, real estate market in many areas of the United States that real estate investing should be put on hold for the time being. However, we have many clients who think otherwise.
Our clients invest in real estate, and other non-traditional assets (mortgages, loans, private placements and hedge funds), within their retirement plans (Traditional, Roth and SEP IRA’s, and 401k’s). Just to be clear – this is different than borrowing money from a retirement account – these investments can be made with your tax-advantaged assets within your retirement account.
The biggest investment class in our office so far? Real estate.
Let’s say you’ve found the investment or the property you’ve been dreaming of and your careful due diligence suggests you’re onto a goldmine. Using a self-directed IRA (or other self-directed account) will enable you to access your retirement assets without paying penalties and income taxes to make the investment.
One of our NJ clients, Dawn Fairlie, has already invested her IRA in a pre-construction condo on Panama Bay in Panama. Ms. Fairlie has done some real estate investing with taxable funds, but says that most of her liquid assets are held in retirement accounts. In addition to the benefit of diversifying her retirement holdings, she may also want to potentially use the pre-construction condo as a retirement home. (This is a great opportunity for investors, however there are many IRS regulations surrounding these kinds of investments so you must do your homework and talk to your account administrator about your goals so they can help direct you through those regulations).
Ms. Fairlie is now looking at another purchase in Panama – an undeveloped piece of waterfront land that would be purchased using her husband’s IRA. This investment would be more speculative and so her plan is to hold it only for a short time.
As far as the US real estate market? She is waiting and watching to determine the best time to get back in the game here.
There’s no question that there is some instability in a lot of the US real estate markets today, however, some of our clients also see that as an opportunity. Many of our clients are waiting to see how low it will go before they jump back in while others are investing in foreclosures in local markets. Or, like Dawn, you can also get into the foreign real estate markets where many think good buys are still to be had; especially undeveloped waterfront land and waterfront condos and homes.
Regardless of which market(s) you decide to enter, using your retirement savings will help you both diversify your portfolio beyond the typical stock, mutual fund, and bond allocations and save you money by maximizing the tax advantages your retirement accounts have.
Real estate investments can generate cash flow as well as appreciate over time – giving investors several opportunities to increase their wealth.
Jaime J. Raskulinecz, CPM is the CEO of Entrust Northeast, LLC, a NJ licensed Real Estate Broker and CEO and principal of Rainbow Property Management, LLC, AMO. Entrust Northeast is a locally owned and operated office that is part of The Entrust Group, the largest and oldest administrator of self-directed retirement plans in the country. Entrust Northeast has become one of the first and only area companies to enable investors to harness their IRA assets to purchase a wide array of nontraditional investments such as real estate, notes, private placements, accounts receivables, limited partnerships and gold. Ms. Raskulinecz has been a successful real estate investor herself for more than 20 years. Jaime can be contacted at 973-809-7455 or info.northeast@theentrustgroup.com. The web site is www.entrustnortheast.com.