This is the first in a series of features on the strategies real estate professionals are taking to build their own or their client’s retirement accounts using the investments they know best: real property.
Over the past several years I've covered the concept that a self-directed Individual Retirement Arrangement (IRA) can not only invest in stocks and other bank-issued products but also real property. When real estate is purchased by an IRA, the IRA holds its title so rental income and eventual sale profits are tax-sheltered within the IRA account.
Now, we bring Gather.com members the inside scoop: real stories from real estate-industry professionals who already use these strategies to either 1) hold title to income-producing or rapidly-appreciating real estate within their own tax-sheltered accounts or 2) use their new-found IRA investment knowledge to help new or repeat clients find the perfect property to hold within their own IRAs.
The first narrative comes from Chris Bluntzer, 48, broker-owner of Miami’s Town & Country Real Estate Services. He used an IRA facilitation firm called Guidant Financial, based in Seattle, to help him rollover his brokerage IRA account to create an IRA-held real estate investment company with a new self-directed IRA custodian.
About IRA-held business entities A formal business entity, like an LLC or C Corp., isn’t required for IRA real estate investments, but it does help accountholders who intend to make frequent transactions that otherwise may fall prey to an Unrelated Business Income Tax, which applies when mortgages and frequent trades are made within a non-business IRA. A business structure also allows for a business checking account owned by the IRA, so accountholders who manage their own accounts are then able to write checks from that account for immediate IRA investment expenses. --JDM |
Allowed IRA investment expenses -- property maintenance, taxes and the $207 per month in condo association dues – are paid by Bluntzer with checks from the IRA’s account. He keeps the account fluid with $750 per month in un-taxed condo rental income.
“I advertised in the newspaper (in this case, the IRA pays the fee), put a notice on the condo bulletin board and let others in the condo property – including the condo manager -- know I had one of the condos for rent,” says Blutzer, an experience landlord outside of his IRA. “As a landlord, if you take care of your places, replace things when they break and treat your tenants well, before long you’ll have a waiting list of people who want to rent from you.”
Sure the Internal Revenue Service requires regular withdrawals from most IRAs (Roths excluded) after accountholders turn age 70 ½, “but I’m having so much fun that I don’t really see myself stopping working at 70 – so I don’t really see myself taking any more than the required distributions,” Bluntzer says. The unsold properties may be taken directly as a distribution, passed on to family members or friends as IRA assets in his will, or “maybe it becomes something I do for charity.” Only the final distribution amount is taxed, so the IRA money can purchase and sell multiple properties between now and then without triggering capital gains.
“This whole strategy is really about tax planning and estate planning,” Bluntzer says. “It’s a lot of work, and we’re not done yet. I’m hoping it will be worth multiples of what it’s doing now by the time I’m 75.”
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Jennifer D. Meacham is a business and personal finance columnist for The Oregonian newspaper and co-author of "IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment” (Square One Publishers, $16.95). Nominate a “Self-Directed Real Estate Professional” to be profiled here, or e-mail your self-directed retirement investing questions to Jennifer at jd@self-directed.info.
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Comments: 6
Well said Kim R.