If you are thinking of buying real estate with Roth IRA funds, let me give you a little advice. Choose the right custodian. There are many examples of a roll over IRA buying real estate, successfully, but the fees charged by various custodians can make a big difference.#1 – Un-invested Cash BalancesOnce you begin buying real estate with Roth IRA funds, you will almost always have some cash in the account. In fact, you need to have some cash there, because all of the costs associated with maintaining the property must come from the account.Don’t think that custodians don’t know this. They take advantage of it. There is one big company that takes away 45% of your earned interest on un-invested cash balances every year. They call it a maintenance fee, but there is no extra maintenance involved. It doesn’t matter what is held within the account, the same type of maintenance is necessary.#2 – Additional ChargesWhen it comes to a roll over IRA buying real estate, you’ll have to have a self-directed account. You tell your custodian to write a check for a purchase. Some companies charge for writing checks. They charge for transferring titles and deeds or mortgage notes. They charge a fee every time that you use the account to make a purchase or sell a holding. All of these fees can add up to thousands of dollars in a year’s time.When speaking of a roll over IRA buying real estate, one of the biggest advantages for investors is the ability to keep more of their profits, due to the tax-free environment of the account. But, if a custodian charges numerous fees, you aren’t keeping as much.Similarly, one of the biggest advantages to buying real estate with Roth IRA funds is that you will “never” pay taxes on those earnings. Your contributions are taxed as regular income. There are no capital games or income taxes on earnings made within the account. Qualified distributions are never taxed.#3 – Annual Maintenance Fee and Reasonable Set-up ChargeIf you have a roll over IRA buying real estate can only be accomplished if you choose a custodian that offers the option. Those companies that are currently offering “free and easy set-up” do not offer the option. They are stock brokers and they charge large fees for buying and selling stocks.A reasonable set-up fee is $50. The annual maintenance fee depends on the total value of the account. If you’re like me, you’re shooting for a million dollars or more by buying real estate with Roth IRA funds. Believe me, it’s not an impossible dream.#4 – Get An EducationIf you are inexperienced when it comes to a roll over IRA buying real estate, get some education and information first. There are a small number of companies that offer “hands-off” investment options. That could be the best choice at this time.As you learn more about buying real estate with Roth IRA funds, you will be able to do more. But, start out slowly, just to be safe.
Contrary to what many people think, there are MANY ways to buy Real Estate without either having the cash necessary to buy or borrowing from the bank. In order to accomplish this type of purchase the buyer must think “Outside The Box”, or to use an overworked term employ Creative Real Estate Techniques. In most cases the motivation of the Owner/Seller will determine their being receptive to offers to purchase with little or no cash being part of the deal. As situations change in people’s personal and business lives, their motivation to do many things also change.To quote from an old mentor of mine, Richard Reno, “Properties don’t have problems, people do.” This being the case, if you can solve a problem for someone, you can probably deal with them.As stated in the “Paper Chase” section, these initial strategies may be very basic to some of the readers, but not to others. I can assure they will be much more interesting as we progress. I personally learn best from examples of how something works. Therefore; I will use that method to illustrate ways to acquire real estate other than with cash down.Finance One Property With Another –Situation: Jones wants to buy Smith’s house priced at $100,000 but has no cash except for closing. Jones also owns a free & clear lot which has a value of $15,000.Possible Solutions:
Jones gives Smith his lot as a down payment and Smith finances the balance.
Jones creates a note on his lot for $10,000 and gives the note to Smith as down payment.
Jones sells his lot discounted to $10,000 cash to a builder then uses cash as down payment on Smith’s house.
Jones creates a note on his lot for $12,000 then sells the note to a note buyer/investor, discounted to $10,000. Jones uses cash as down payment on Smith’s house.Comment: This same formula can be used with personal property. For example, Jones may have a car, boat, airplane, etc. which he could give Smith as down payment or create a note on the personal property and use the note as down payment.These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.