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Investing Your IRA in Arizona Real Estate
Memories of the bear market and continued concern over low interest rates have a lot of Arizona IRA Investors looking beyond stocks, bonds and mutual funds for their retirement savings. A growing number of Arizona Investors have discovered they can use the money in their IRAs to buy real estate -- from Arizona raw land to Southern Arizona single-family homes to Arizonan commercial buildings.
However, just because you can doesn't mean you should, warns OwnArizona™ IRA Specialists. The rules are complex, and the stakes for running in conflict of them are high. A misstep can disqualify your Arizona IRA's tax-deferred status, forcing you to pay tax on its full value plus penalties if you're under age 59½. If you want to invest in Arizona real estate in your IRA, OwnArizona™ IRA Specialists suggests real estate investment trusts.
OwnArizona™ IRA Specialists note that owning Arizona investment property inside an IRA forfeits the traditional tax advantages of investing in Arizona real estate. You can't deduct property taxes or mortgage interest, and you can't use depreciation. When you sell the Arizona property, a traditional IRA turns profit into ordinary income rather than capital gains (with a Roth IRA, profit would be tax-free).
Plus, your IRA must have enough spare cash to pay such Arizona property-related expenses as maintenance costs, taxes and management fees because all income must flow into the IRA and all expenses be paid out of it.
Just the same, there are plenty of success stories. If they intrigue you, be prepared for a lot of work. Or contact our OwnArizona™ IRA Specialists for the necessary experience to do the legwork for you. First, you have to find an Arizona investment property you desire. Then you have to find an OwnArizona™ Self-Directed Real Estate IRA custodian that allows real estate investments. Don't look to your local bank or mutual fund company for help -- there are only a handful of OwnArizona™ Self-Directed Real Estate IRA custodians who do this.
Skilled 7-Step Guidance Through Investing IRA in Arizona Real Estate
Don't let the concern of Wall Street and the uncertainty of the economy stop you from saving and investing with your IRA or 401k. We can position ourselves to be prepared so we can prosper and use common sense to protect our individual retirement accounts. You have your OwnArizona™ Self-Directed Real Estate IRA, what is next? Here are the steps for purchasing Arizona investment real estate with an IRA:
Step One: Select an administrator as the trustee of your account. You will select an administrator when you set up your OwnArizona™ Self-Directed IRA. The administrator will help take funds out of your IRA and purchase the Arizona property on your behalf. They will properly document the transaction.
Step Two: You must go out and find the Arizona real estate to invest in. You will not get help or advice from your administrator in selection of the Arizona property. You are completely responsible for the due diligence on the selected Arizona property. This means determining if this will give you good returns, if it's too expensive to maintain, etc. If you pick the wrong property and it results in a loss to you, you are responsible, and not the administrator.
Step Three: Bring your accepted Arizona real estate contract to your administrator. They can assist you in the transaction.
Step Four: If you need additional financing, you must secure it. This would occur if you do not have sufficient funds in your IRA to pay the full purchase price of the Arizona property or if you wish to only invest a portion of your funds in the Arizona investment property.
Step Five: Once purchased, any fix-up funds must come from the IRA. You cannot work on the property yourself if it increases the value. If you are a professional contractor/remodeler there are possibilities of construction.
Step Six: Making money from your investment, here are your choices once you've purchased the property: (a) you can fix and flip, (b) buy and hold for the Arizona property to increase in value, or (c) you can turn it into an Arizona rental/income property. All rental income must be made payable to your IRA and deposited into your account through the OwnArizona™ Self-Directed Real Estate IRA custodian (your administrator or trustee).
Step Seven: When you sell the Arizona investment property real estate all proceeds must go back into the IRA.
Sample Arizona Self-Directed Real Estate IRA Investing
"Jane" Example Scenario 1:
That's how Jane found OwnArizona™ Self-Directed Real Estate IRA custodians. She transferred her $150,000 IRA from her brokerage account to OwnArizona™ and used $62,000 to purchase a fix-up single-family Arizona home. She spent $16,000 to remodel the house and sold it within the year for $98,000. The remodeling costs came out of Jane's IRA; the profit went back in. She can now purchased three other houses with cash and estimate a minimum 50% return within one year. But Jane, has a big advantage over most of us. She is an experienced home remodeler.
"Smiths" Example Scenario 2:
Mr. Smith and his wife, don't know anything about investing in Arizona investment real estate when they start four years ago. But as the two of them approached 50, they knew they didn't have enough money to retire. "We didn't want to end up in a trailer park," Smiths joke. So on the advice of a OwnArizona™ IRA Specialist and Real Estate Agent, they use the $100,000 in Mr. Smith's IRA as a down payment on a four-unit Arizona apartment complex. Rental income flows into the IRA, and the Arizona investment property appreciates by about $200,000. However, if you buy an Arizona apartment building or Southern Arizona commercial space, you'll need to hire a property manager to collect rent and maintain the building. Depending on the IRA custodian, you may have to pay a transaction fee every time you authorize a check to pay a plumber or your property taxes. Financing real estate inside an IRA, like the Smiths, adds more complexity because an individual cannot personally guarantee a loan to an IRA, and few banks will lend money to an IRA based solely on a property's potential appreciation. If you pay cash for an Arizona investment property, you give up the power of leverage. On the other hand, using leverage inside an IRA can trigger an unknown tax upon sale of the property on income attributed to borrowed money.
"Jones" Example Scenario 3:
The Jones, who are avid golfers, stumbled on an intriguing investment opportunity when they visit Tucson, Arizona last year: a one-acre golf course community home land lot on the eighteenth green for sale for $550,000, a price they considered a steal. They made an offer on the Arizona property and spent the next few months figuring out how to buy it. With the help of OwnArizona™ IRA Specialist and Real Estate Agent, the Jones and six other family members established a limited liability corporation and used money in eight separate IRAs to buy the Arizona land.
Despite the complexities, the availability of lending is likely to increase as more financial institutions and professional advisers learn about this investment niche, predicts OwnArizona™ Self-Directed Real Estate IRA Custodians and Real Estate Agent. Of the nearly $3 trillion invested in IRAs, experts estimates that less than 1% is allocated to direct real estate investments. But know that that is changing. The only reason is a lack of knowledge and education.
Our OwnArizona™ Self-Directed Real Estate IRA message is: This is a relatively unknown avenue to build wealth in your retirement account. The fact is that real estate investing inside IRA's is one of the most excellent kept financial secrets around. Please contact us for further information.
The OwnArizona™ Team Does More Than Buy and Sell Tucson Real Estate
We spend a lot of time out in the local investment properties market getting to know every in and out of each area and the Arizona investing income real estate market in general.
Go ahead, Call or Text us right now at: 520-822-6575.
Or, contact us by email for Tucson & Southern Arizona Investing IRA in Investment Property real estate results, not hype.
The market commentary material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without error.
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