This is Part 3 of a 3 Part series exploring the relationship between “distressed” properties and Self Directed IRA real estate investing.

In Part 1, we took a look at the opportunity (for investors) created by foreclosures, short sales and REO (real estate owned) property.

Part 2 dealt with the advantages of being a cash buyer utilizing a Self Directed IRA or 401(k).

Part 3 will explore having the “right plan” in place before the investment opportunity arises!
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During the course of a day, we receive at least one phone call from a potential client who is frantic to set up a Self Directed IRA plan in order to complete a real estate transaction that has already been set in motion.

This scenario has several potential downsides. First, it runs the risk of creating a prohibited transaction regarding mixing personal funds with IRA funds (because of the down payment requirements). Secondly, if the investor has been aggressive in setting a closing date, there is a real possibility that the Self Directed IRA plan won’t be in place in time to make the closing.

Therefore, when it comes to taking advantage of purchasing “distressed” properties with a Real Estate IRA plan, the key is…to already have the plan in place prior to engaging in a transaction.

(As pointed out in Part 2 of this series: Retirement investors who have set up a Checkbook IRA, or a Solo 401(k), plan with checkbook control, have the same advantage as a cash buyer.)

In an article in the San Francisco Chronicle dated Sept. 1, 2009, Carolyn Said, a staff writer, recounts the story of Nathan Foran who used his self-directed IRA to buy a dilapidated foreclosed house for $25,000 cash.

Foran plans to invest another $25,000 to $35,000 from the retirement account to fix up the property. He then hopes to rent it out for about $1,000 a month…money that will go straight into his retirement account.

Although Said doesn’t address the issue, Foran would have already had a Self Directed IRA, Checkbook IRA, Real Estate IRA or Solo 401k plan in place in order to acquire a foreclosed property. In fact, it is a foregone conclusion, since immediate availability of cash is required for such transactions and only a plan with checkbook control would afford this option.

The author of the article goes on to point out:

“With many properties at bargain-basement prices, more people have been turning to their self-directed IRAs as a ready source of capital to make real estate investments. Companies that manage self-directed IRAs say real estate investments by their clients are up as much as 30 percent over the past year.”

Further, she states that “Self-directed IRAs account for just 2 percent of the $4.2 trillion IRA market, but are among its fastest-growing segments. They allow access to a variety of investment vehicles beyond just stocks and bonds.”

“Most IRA real estate investors buy properties with all cash, the simplest approach”, Said points out. “If they don’t have enough funds to do that, they can partner with other IRA account owners, or even partner with themselves, for instance paying half from their IRA and half from their personal savings.”

Suzanne Gregg, an agent with Paragon Real Estate Group in San Francisco, has bought and flipped a couple of properties through her IRA and said she tripled her money.

“It’s not like you just buy a stock online and forget about it; it’s a little more hands on,” she said. “It’s a tangible asset you can see and manage.”

As we have discussed in the previous 2 articles in this series, opportunities for picking up “distressed” properties abound. Yet there are 3 fundamental steps that should be taken in order to be successful:

Step 1: Education. Be able to speak the language of “distressed property”.
Step 2: Put together a team of knowledgeable professionals to assist you.
Step 3: Have the right plan in place prior to engaging in a transaction.

If you are serious about growing your retirement wealth through investing in distressed properties with your self directed IRA or Solo 401(k), contact one of our expert IRA advisors today.  We’ll help you establish an investment plan that will enable you to be ready to act on opportunities quickly and gain the best deals.  Our experienced and professional team will have your Checkbook IRA or Solo 401(k) up and running in 30 days or less with the fastest, turn-key setup process in the industry.

Safeguard Financial
877-229-9763
www.IRA123.com

(Carolyn Said’s article can be read at SF Gate, the online home of the San Francisco Chronicle.)