When the banks won’t lend, why not beat them at their own game and lend from yourself? Or better yet, coordinate deals where you bring together private lenders with underperforming investments, and pair them with below-market real estate properties? The playing field has changed my friends, and for those who know how to take advantage of it, fortunes will be made!
Most people you meet are sick and tired of the rollercoaster ride the stock market has taken them on. And, many people are also wary of real estate with its plummeting values. However, nearly everyone understands the value of a ‘hard asset’ like real estate, if it’s explained to them correctly. The next time you’re talking to a potential private lender, ask them “How would you like a return OF your money as well as a return ON your money?” Most stock brokers never ask that question!
Nearly 97% of all IRA investments are in traditional stock and mutual fund accounts. The rest of this article is for the other 3% who want better control of their financial destiny, leveraging self-directed IRAs and creative finance to build their retirement portfolio.
There are three primary models for self-directed IRA investing:
- Assignment of Contract to Purchase Real Estate
- IRA Lending
- Purchasing Long-Term Real Estate to Hold
Model 1: Assignment of Contract to Purchase Real Estate
This is the simplest form of investing: You find something that someone else would like to purchase (a house, condo, duplex, building, etc.), and place a Contract to Purchase on it, naming your IRA as the buyer with the right to assign the contract before closing. Basically, you’re finding something to buy wholesale, and selling it at retail! Any profit you make will be tax free forever if it is a Roth IRA, and tax deferred if it is a Traditional IRA (or a plan taxed like a Traditional IRA). You can quickly build up investment capital with this method.
Model 2: IRA Lending
You can keep your IRA money working all the time at a predetermined interest rate with this technique. You loan trustworthy individuals with your IRA funds which is secured by real estate at a safe loan-to-value, earning a competitive interest rate.
Model 3: Purchasing Long-Term Real Estate to Hold
Most people aren’t aware that their IRA can borrow money to purchase real estate. This means you can allow your IRA to enjoy the same leverage as you (the IRA owner) might have. There is no limit to the number of houses your IRA can own.
These three models just scratch the surface, and as you can imagine, there’s much to learn to employ each strategy successfully. My goal is to get your wheels spinning so you can begin to see the possibilities of what is available once you know what to look for.
Combining creative financing and IRA investing provides an unbeatable strategy for today’s liquidity crisis . . . and it can be successfully used in all areas of the country. Walter Wofford will be teaching these topics and more on October 23-24 at the REI Rainmaker Retreat.
He has been successfully investing in residential real estate in the Jackson, Mississippi area. In his 29-year investing career, he has bought and sold over 1,000 houses and renovated 200 houses, upgrading whole neighborhoods at a time. He is a real-life real estate investor who works every day in the business and teaches basic and advanced IRA education involving real estate, notes, options and wraps throughout the country. Walter combines real estate knowledge with practical experience, and mixes it with a sense of humor that will keep you glued to his every word. And, he’s a hoot to listen to…come prepared to be taught AND entertained! It’s a rare case where you can have your cake and eat it too.
Starting real estate business and have been looking into all the ways to profit for about a year now. Website is almost complete and I need some mentoring in the jackson ms. area. I’m a member of DG.com and PMI. Success adcademy. Have only been successful closing one deal and failed on two others. Its like a big puzzle with half the pieces missing and as an investor, when I’m asked a question I want to be able to give the answers, especially when it involves a strategy that I’m using. I can find the best possible deals. I bought one for 18,700 and it appraised at 73,800. It was rather sloppy and it took to much time to close but it finally happened. This is what I want to do and if there is a little help out there it would be greatly appreciated.
Feel free to check out http://www.PACTProsperity.com and click on the coaching link. You might find what you are looking for there.
Good luck & happy investing
Augie
Ok I think I understand you concepts – and I have savings that I have been reluctant to invest for fear of losing it. So how would one go about making sure that all the legal stuff was done or alternatively find someone to work with who is very strong on the experience side?
I have always felt that real estate was the way to go as there is only so much land ..and we can’t make more … but I have no wish to be a landlord.
I would welcome your thoughts on this …
Marie
Hello Marie,
Like any other investment the best way to avoid losing money is to get an education. While there is no guaranty with any investment, education can dramatically minimize your risk. My advice would be to find a local Real Estate Investment Association (REIA) or investment club where you can connect with like minded individuals. Additionally, most REIAs provide access to a variety education and training programs. Another alternative is to read, there are many excellent primers out there on real estate investing (as well as land lording). If you don’t wish to be a landlord, there are property management companies who, for a fee, will manage your property for you.
Real estate provides a variety of benefits including, tax advantages on investment property, income from rents and mortgages, appreciation, and amortization or equity build up to name just a few. It has also been an excellent inflation hedge. Whether or not it is right for you is another question.
The first thing you have to decide is whether your current wealth building plan will get you to where you want to be in terms of financial freedom. If so, you don’t need real estate. Without knowing your age, income, or retirement objectives it is difficult to be more specific. The bottom line is always answering the following question, “What are you willing to do now…to ensure the tomorrow you really want?” Reaching one’s financial objectives rarely happens by accident.
To your success…
Augie
This is like the holy grail of real estate investing. Using your Roth IRA is near genius. In my opinion, only a certain percentage of investors would ever take advantage of this. But the sofistaicated investor knows that great returns are realized from interest payment AND the requisites fees involved. If the person does not pay up, you can forclose on the property.
It is an amazing opportunity for those prepared to take advantage of it. If you want to learn more, check out there is a great event on October 7 & 8 in the Orlando area and this will be one of the subjects covered!
To your success…
Augie
Great article! I have been in real estate for over 10 years and agree with you 100% on the effectiveness in having a self directed IRA.
Me personally, I prefer the Roth over the traditional for obvious reasons. Another approach that people can use that is EXTREMELY profitable without the headaches, is investing in Tax Lien Certificates within your self directed.
What a great way to earn a healthy return on your investment backed by the government (though I question them sometimes lol). Not only that, but you may end up owning a piece or two of real estate free and clear with 100% of the rental income going into your Roth…with no deferred taxes.
Thought I would throw that in. Thanks for the article.
Holy Cow. You can use your IRA to invest in real estate. That was really an eyeopener. I really got to understand this in much more detail. Thanks for highlighting this.