All Forum Posts by: Ravi Renduchintala

Rates are still at historic lows, and so it's only a matter of perception. It will get some people off the fence. Common consensus is that the Fed will keep its foot on the gas pedal till late next year and let rates rise slowly after that. Economy is still soft as evidenced by the latest job numbers and slowdown in manufacturing activity due to Eurozone weakness.

If you are investing in single family real estate, then you know that rent payments are the cash-flow engine of your investment. So, let us take a look at the motivation behind renting. The first one is nest egg-reluctance. This simply means that families are reluctant to take a big piece of their savings and plunk it into a mortgage. Why? Because of personal economic uncertainty. These families would rather keep their nest eggs for a rainy day if there is job loss or income reduction. In a home buying situation they no longer have access to these funds since the days of using your home as an ATM machine are over. So, in many instances, these renter families may be paying more than whatever tax deductible mortgages might cost them. But they still choose to rent. The second reason is the suspension of appreciation. What we mean by this is that renters no longer believe that home prices are going to appreciate dramatically, allowing them to keep moving from starter homes to bigger and better homes cashing in on home price appreciation. Of course a sustained period of home price gains may soften this attitude. But for the present, this is the new normal. The third reason is flexibility. The next job can be anywhere and in this slow growth economy many folks can't sit back, wait and be choosy. That rented house is easier to get out of than a thirty year mortgage which would involve selling the house in order to move lock stock and barrel. It becomes a big impediment to mobility.

Then there are those who can't afford the mortgage, the taxes, the Home Owners Association and related fees. They simply rent at their comfort range. Finally, there is post-mortgage trauma. These are families that have been burnt by foreclosure and other unfortunate loan repayment related ailments. It's going to be a while before they slap on a mortgage. They do like renting houses, though.

So what does all of this mean for a real estate investor? It means that your cash flow engine for rental real estate is sound, provided you buy the right house, in the right neighborhood, with the right manager.

Here are some startling statistics. According to an article titled, “Workers Saving Too Little to Retire” by the Wall Street Journal, 10,000 people are turning 60 every day and 57% of US workers surveyed, report less than $25,000 in household savings. The survey also found that 28% of all Americans don't have the confidence that they will have enough to retire comfortably. Meanwhile, pension plans are stretched because Americans are living longer. Only half of the people surveyed said that they would be able to come up with $2000 if a need were to arise in the short term. Pretty scary stats! The manifestation is all around us. Retirees are doing odd jobs like boxing at Costco or driving a shuttle to the airport to make up that extra $1000 income gap. Does it have to be this way for people that have worked hard all their lives? The roller coaster rides of the stock market and low fixed income environments have whacked a generation hard, dealing many a knockout punch. Take target date funds that set retirement dates and load up on bonds towards the end. Well, if interest rates stay at such low levels, the price of those bonds is likely to fall with a slight increase in interest rates. And that will hit a number of about-to-retire folks. No escape in the market jungle!

Real Estate investment could be the answer for the fixed income malaise afflicting potential retirees. If they had bought a rental home every now and then over the span of their careers, they may very well have had that extra $1000 or $2000 in monthly income when they needed it most at retirement. One way they can make a difference is if they could get their kids started in the right direction to avoid their mistakes. I know of investors that have paid for their children's college education using this strategy. It still may not be too late for many of them. And a piece of real estate is not going to vanish like Enron or a Madoff ponzi scheme. The key is to buy the right property in the right neighborhood managed by a trustworthy property manager.

Believe the first part of the question has been replied to. In terms of using the IRA to invest in the business there are some self directed IRA companies that specialize in this by setting up an LLC and making you the managing member. it's a little more expensive to do but can be done.

There are a number of Self Directed IRA companies such as Entrust. Pensco and Equity Trust. The key is to take a portion of your IRA that you want to diversify and put it in the SD IRA. You do need to keep a cushion for repairs etc. If more money is needed you can always transfer from your IRA. That is why it is important to use this as a diversification strategy and not commit your entire IRA funds
Yes, if you borrow you will have to pay taxes on that piece but it allows you to buy more with less. Non recourse IRA loans are another topic. The interest rates tend to be higher so they will bring your overall returns down but it lets you buy more with less.
In terms of doing work on your property etc. there are LLC structures where you can put yourself as the managing member to make this work. There are companies that specialize in this as well.

While using an IRA to invest in property that's been foreclosed on is a fantastic option for increasing tax-free earnings, it's just as important that long-time and new investors know the potential pitfalls and benefits of such a move. Below are a few of the important considerations to make before investing your self-directed IRA into a foreclosed property.

Tip #1: Buy the foreclosed property.

Self-directing IRA investments into real estate has been legal since 1974. Of course, mot financial institutions don't allow the practice because they'd prefer you invest in their chosen stocks, funds and bonds instead. Makes sense, right? That being said, you can and in many cases should use your IRA to purchase a foreclosure property. Doing so could even open up more funds for other investments. If your retirement fund doesn't have quite enough in it yet to purchase a property outfit, you could even choose to own a portion of a home or property through a partnership with undivided interest or even get a non-recourse loan.

Tip #2: Put that property to work.

Owning the property isn't even half of the story. The key is to put that property to work earning money for you. Whether you decide to rent or to sell the property, the key is to make that income replenish and ultimately grow your IRA account over time.

Tip#3: Consider tax advantages and disadvantages.
The Roth IRA lets you grow all of your earnings tax-free because you're putting "after-tax" money into the fund. The Traditional IRA is a tax shelter until you're 59.5 years old, meaning you won't have to pay taxes on any earnings until you start taking qualified distributions at that age. Consider the potential earnings that investing in a foreclosure property will bring and that those earnings will be tax-free using a Roth IRA. Are you starting to see the obvious benefits of a Roth IRA now?

Above all else, it's important to educate yourself about your options. Do the due diligence and find the best self-directed IRA custodian to help you reach your goals and soon you too will begin enjoying all of the benefits of self-directed IRA real estate investing!