With the recent downturn in real estate, how many of you are promoting the investment of real estate through IRAs? For years, the IRS has allowed individuals to purchase real estate with the money in their IRAs and 401 (k)s. Most individuals don't know about it because their investment advisers don't tell them about it. That's because they don't understand them plus the fact they wouldn't make any management fees. Well, I think there are plenty of us in the real estate business that don't understand them, either.
It's a pretty easy concept but there are some important aspects to remember. The buyers need to have their investment run by an authorized custodian. They can't use if for any personal use, and that includes their families. The also can't do any maintenance or management of the property because that would be deemed an unauthorized contribution to the IRA. They can invest in a group with other people, where the participants pool their IRAs. They can also borrow to purchase, however, since these would be non-recourse loans, lenders have tightened up their requirements. A couple of years ago you could finance 75% of the purchase price, now most lenders require at least 50% down. Even that isn't so bad because the buyer is still using leverage.
With so many great buys out there, this may be a great time to pull money out of stocks and invest in real estate. Don't even attempt this until you've educated yourself on this play. I would recommend reading several books plus attending any workshops your Realtor association may offer. Once you understand this, you could be opening yourself up to a whole income new stream.
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