Let your IRA own property
March 4, 2011
Experts agree: now is the time to buy Park City real estate. But if a buyer can’t get a loan for an investment property and doesn’t have enough cash on hand, there may be another option.
Jon Galane of The Entrust Group will give a presentation on buying real estate with an Individual Retirement Account (IRA) March 9 from noon to 2 p.m. at The Prospector on Sidewinder Drive.
Realtors can earn two hours of continuing education credit by attending, Galane said. The presentation is part of The Prospector Educational Seminar Series to complement the conference center’s outside-group activity.
Galane’s company offers self-directed retirement plan services. They take no part in the marketing or purchasing of real estate. He is not in town to promote any particular investments, he said. His specialty is in the practice of buying real estate with an IRA and will discuss the benefits and risks of doing so.
An IRA can be many things, and there are multiple categories of IRAs. Some of the differences have to do with taxes. Having real estate inside an investment portfolio has the potential of generating tax benefits while allowing that account to grow faster, he said.
Every IRA requires an administrator and that is the service he provides. In contrast to an IRA administrator who does investing, Galane’s company only manages self-directed accounts. He handles issues investment brokerages cannot manage, and he cannot do what brokerages do, he explained.
Recommended Stories For You
"We don’t come up with the real estate to buy we put it in the IRA for them," he said.
Investing a retirement account in the stock market is supposed to return a certain amount over several years, but because of the recession, those returns have not materialized.
Investing in real estate guarantees a much more reliable return, he said. It’s not a plan for house flippers and get-rich-quick investors. The down payment is typically 30 to 40 percent of the value, but the loan is given to the IRA not an individual. The property becomes the collateral and cannot harm the rest of the IRA if foreclosed upon.
But Galane said he doesn’t have a single client who defaulted on their loan during the recession. Because it’s a retirement account, his clients have more "skin in the game," he said. Plus, because it’s an investment property, the rental revenue often pays the mortgage.
While not everyone has $30,000 to $100,000 in a retirement account to use as a down payment, those who do can increase the value of their account instantly by $100,000 to $400,000 by adding the home. The mortgage is paid by the IRA.
There can also be incredible tax benefits to having a home in the IRA versus owning it as an individual, he said.
And many adults have that much in their IRA, but not in their bank account. That’s the value to Realtors, explained agent Heather Feldman, whose husband Larry Feldman is organizing the presentation for The Prospector.
Some lenders have decided to stop funding condominium-hotel units or other vacation properties. But with prices low right now, many savvy investors want to buy if they can find the funding. This is an option, she said.
Because the IRA owns the home not the individual neither the owner nor any immediate family members may live in or enjoy the property. It is purely an investment home, Galane said.
This can change once the holder actually retires, but until then it can only be rented this is true for all property types, he said.
But that means renters are paying into your IRA, and expenses are tax deductible for the IRA, he added.
Galane estimated real estate only needs to appreciate three percent a year to considerably outperform money in the stock market.
The plan is not for everybody. It would not work for households putting a few hundred dollars a month in an IRA while paying off other debts, he said. This is for people with tens of thousands of dollars saved up.
"We can show them fun things to do with that money," Galane said.
People in his profession are not financial advisors, he added. Clients should first seek the advice of a wealth-planner. Once they decide buying real estate with an IRA is right for them, people like him can help.
The Prospector’s series in autumn will host the Deming Seminars, based on the teachings of the renowned management expert W. Edwards Deming.
To ask questions, email firstname.lastname@example.org or call 1-866-3311.
View The Prospector in a larger map