How Your IRA Can Turn You Into a Real Estate Mogul
In writing this article, I am assuming (hoping for your sake) that you have an IRA in your name. If not, this article will be worth reading, so you know why you should jump on the bandwagon immediately.
The harsh and unfortunate reality of IRA’s is that the overwhelming majority of people have the money invested in mutual funds or directly invested in stocks. For some this “hands off” approach is preferred but for most, the stringent guidelines for IRAs preclude us from truly managing these funds to maximize our returns.
I want to outline for you a mechanism that I discovered only three years ago and have utilized ever since. It is known as a “Self Directed IRA”. Self directed IRAs can be used to hold a multitude of investments from Real Estate, to Gold, to stock, and even interest in private corporations. As you would expect there are stringent guidelines on these holdings and the transactions involved, but right here in Southwest Florida there is a company that specializes in just that. The name of the company is Advanta Trust.
My purpose here is not to promote this company but rather to outline for you how this might be a very useful tool to you. Almost every critique and expert forecast that we read agrees that Real estate prices have bottomed out. Our area is no exception. Southwest Florida has seen a strong stabilization in the market place over the past 12 months. One tell-tale statistic comes from The National Association of Realtors. The organization has computed what’s called the Housing Affordability Index since 1970. For the first time ever this index broke 200 and indeed rose to 205.9. What this means in plain talk is that when the median price of a home is divided by the median income, the resulting mortgage gobbles the lowest percentage of income since 1970. What it means in Southwest Florida for investors is that it is now possible to purchase a home that will produce positive cash flow.
An effective way to capitalize on this unique affordability is with the funds in your IRA. This is particularly useful if you have Roth IRAs since income and appreciation do not have any taxable consequences in the future. You can purchase a property or even a portion of a property with your IRA funds. This purchase must be strictly for the purpose of investment which precludes you or your immediate family from benefitting from the purchase through use. What it accomplishes, however, is allowing you to purchase Florida Real Estate at what most believe to be the bottom, rent it, and capitalize on the appreciation while your IRA receives the income generated from rent and appreciation.
Let me outline a very realistic scenario. Purchase a single family home for $150,000.00. Let’s say HOA dues, taxes, and insurance would come to roughly $400.00 per month and rent would be in the neighborhood of $1400.00 per month, thus the property would be bringing in $1000.00 each month. The return on this investment computes to almost 7% before figuring in any appreciation in value… (certainly worth noting).
Having put my money where my mouth is I am well versed and happy to discuss the benefits and limitations of investing your IRA money in Real Estate. Investing in tangible assets in the face of our present country’s economic uncertainty just seems to make sense. Give Brad or me a call at 239-963-4811 for more information on how to turn your IRA into a productive tool that you control.