Investment Strategies in Real Estate

As you probably already know, many of the wealthiest people in the world have earned their money through real estate. It just makes sense; real estate almost always appreciates making it a very wise investment.

Why the rich keep getting richer
It is estimated that 80% of the world’s wealth is held in real estate by less than 20% of the population. According to M. Anthony Carr, author of “Seven Ways to Make Money on Investment Property,” “The key to building true wealth in real estate is through buying and holding.” A rental property can create wealth for you by having a renter pay for the mortgage, insurance, taxes and fees through rent.

Carr provides an example of how you can make money with rental property. He says, “Let’s say you purchased a condo at $150,000 for $15,000 down payment. If it grows at 5 percent per year ($7,500 first year, etc.) you’re making more than 50 percent on your money that you actually invested – can’t get that kind of power behind mutual funds.”

Use your IRA to buy real estate
Using your IRA (both traditional and 401-K plans) to purchase investment real estate can be a wise financial move. The law states that you may purchase real estate, mortgages and other real estate-related assets so long as it is not your primary residence. Not only does it help diversity your investment portfolio, it also allows you to tap into your IRA without paying a penalty prior to retirement. The following will explain how you can purchase real estate with a self-directed IRA.

You’ll need a plan administrator/trustee to process your request
The plan administrator cannot recommend purchases but once you identify the investment, they will act on your order. Record-keeping and administration expenses may be paid directly, from separate funds or through the plan and may be tax deductible.

Redlands real estate is included in this type of purchase
Condos and townhomes are included in the types of property you can purchase with an IRA as are single-family homes, other multi-unit homes, apartment buildings, co-ops, commercial property and land.

How do I finance the purchase?
You can finance the property you wish to purchase using the property as collateral. However, since the property is an asset of the Plan, repayment must come from contributions to, or income from, the property or other assets in the Plan.

Important considerations to remember
It is important to remember that the entire transaction must flow through your IRA or 401-K account. The escrow must be opened by the account, not in the name of the beneficial owner. Vesting is always in the name of the account. What’s more, only qualified Plan or IRA funds may be used for good faith deposits, down payments or purchase money. If the title is vested in the individual account holder’s name, it may not be sold to the tax-deferred account.
Note: While fractional interests in real property may be purchased or sold, these interests may not be bought from beneficial owner or members of their family or business except siblings......


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