Using the power of IRAs to sell more real estate

Real Estate Weekly, March 26, 2008 by Jaime Raskulinecz

With 78 million Baby Boomers moving into the early years of their retirement; and countless others socking away the bulk of their investments in 401(k)s and self-employment retirement plans, the question worth asking yourself is simple: How easy is it for your clients or you to tap into retirement funds to purchase real estate or make real estate-related investments now--when the price is right?

For years, many of us have been told incorrectly "it's not possible" or "it's just too complicated for the average investor."

Today, thanks to the creation of administrative custodians and trustees who specialize in self-directed IRAs, the answer to this question is "Yes, you can tap IRAs and retirement plans for real estate related investing, with no more administrative paper than it takes to open a broker-dealer account or your own IRA."

In fact, self-directed real estate IRAs and 401(k)s have been in existence for almost 30 years. These are the same IRA s and 401(k)s with which everyone is familiar, with a small but important twist: simply put, self-directed IRAs and plans allow for the full range of investments that the IRS allows including real estate, notes; options, leveraged property and much more. The only investments not allowed are life insurance, collectibles and shares in sub chapter S corporations. You can transfer any IRA to a self directed IRA, amend and restate an existing 401(k) plan or, if you're self-employed, even create a new plan that permits self direction. You may also transfer a previous employer 401(k) plan to a self-directed IRA.

Find a local third party administrator or a trustee offering such diversification.

Then you can have them go through the simple process of transferring the accounts. If you have an old 401 (k) where you used to work, you can directly roll those funds over to your newly-created self-directed IRA.

You can also establish a new Individual 401 (k), with this self-direction and with new generous contribution limits if you are in business for yourself. There are other plans available for the self-employed as well.

For those of you with defined benefits plans, adding self-direction is just a matter of amending and restating the plan documents (if necessary)--a third party administrator or trustee can easily help you accomplish this.

Now you are ready not 0nly to help clients leverage .your expertise to diversify their retirement portfolios with real estate investments, you are also ready to build your real estate business.

Educating your clients on real estate investing with a self-directed IRA creates lasting customer relationships, repeat business and valuable referrals, since people who want to invest (as opposed to those who buy and live in their real estate purchases) come back to use agent services again and again.

Here are seven ways you can harness your expertise to tap the power of your and clients' IRAs:

Invest in real property directly. By creating a self-directed account, you can use your IRA and/or 401(k) funds to invest in an investment property directly. You direct the trustee to make the investment in your choice of property. When you see a property coming on the market that you feel will appreciate and generate cash flow, you can make the purchase with your self-directed IRA.

OPI: Combine your IRA with Other People's IRA funds so you can make larger purchases or a single purchase of a larger dollar amount, be it a single family property, apartment complex or condos.

OPM and OPI combined: You can combine your IRA, OPI and Other People's Money (OPM) to acquire the investment property that you want. Under IRS rules, each person/IRA receives an undivided interest in the property. All income is allocated directly in relationship to the amount invested by each person, IRA or 401 (k). You can even include family members, as long as the: transaction closes simultaneously.

Leverage the investment. Yes, you can have leveraged property in your IRA or 401 (k). The loan must be non-recourse to you as an individual, and yes there are lenders who do this. Some community banks and savings associations who are portfolio lenders will make non-recourse loans on investment properties.

Be a lender. Your IRA and 401 (k) or other plan can lend funds to anyone who isn't your ascendant, descendant or spouse thereof. This is an important option to highlight for clients who may need additional capital.

Finance other People's Commissions. If someone needs cash now, you can have your IRA or plan buy their commissions at a discount rate relative to your payout to them.

Construction Loans: Your IRA or plan can be a builder.

These are just a few of the investments you as a realtor can make and help clients make using self-directed IRA and 401 (k) funds.

In all cases, all income goes into your account and expenses are paid from the account.

Some of the expenses include those things associated with your property or other asset, such as accounting, property management, legal, maintenance and marketing fees. It is an additional source of cash to make your real estate business grow!