Self-Directed IRAs Good Vehicle For Investing In Real Estate

Did You Know???

The great majority of investors believe that the money held in their Individual Retirement Accounts (IRAs) can only be invested into stocks, bonds, cash mutual funds or other "traditional" type investments. Not so!

The fact is you can invest in real estate, tax liens, mortgages and other high-yielding investments through your IRA. How? You have to understand that you and your IRA are not one and the same. IRAS are established to benefit you, but they are, in truth, a separate "trust." An independent custodian holds the assets in the IRA for you.

If you have a piece of investment real estate you want to hold for income, your IRA can purchase the property. The title is held in the IRA, and is titled to the IRA. For example, if it were in my name, the title might read, "XYZ Trust Company Custodian For the Benefit of (FBO) Brent Greer IRA." Get it?

Here are the major benefits: 1)Tax advantages -- When you sell you do not pay tax at that time because all the proceeds are kept inside the IRA. Any gain you have from the sale of real estate within your IRA will be tax-deferred (tax-free for a Roth IRA). 2)Access to capital - A frequent barrier to purchasing investment real estate is initial capital. But many people have money in their IRA that can be used to buy property for income (multi-family, commercial), raw land, even mobile homes. In addition, you do not have to own the entire property yourself. You can go into partnership with another investor.

There are some prohibited transactions, primarily those where you or your relatives have prior ownership. Specifically, your IRA cannot purchase a property that you or a relative are selling. These are called "self-dealing" transactions.

Your self-directed IRA might be a handy vehicle for helping you get into investment real estate without using out-of-pocket funds.

Major Banks May Set Up Bailout Fund To Ease Global Sell-Offs of Securities

Reuters News Service is reporting that major banks, including Citigroup Inc/, are looking at setting up a roughly $80 billion fund to buy ailing mortgage securities and other assets, in a bid to prevent the credit crunch from further hurting the global economy, sources familiar with the matter said. News sources told Reuters that representatives from the U.S. Treasury have organized conversations among top global banks, sources said, as financial institutions grow increasingly concerned that a certain type of investment fund linked to banks may have to dump billions of dollars of repackaged loans onto financial markets.

The concern? A fire-sale of assets could lift borrowing costs globally, trigger big losses from investors and force banks to further write down some holdings on their balance sheets. Such sales could trigger huge losses for banks, and in the worst-case scenario tip the U.S. or Europe into recession. The fund would be the latest response to a global credit hangover after at least three years of easy credit that fueled massive mortgage lending in the United States and spurred record levels of leveraged buyouts.

How Does A Reverse 1031 Exchange Work?

I had a client in the office yesterday with whom I have assisted in the disposition of rental properties, and the acquisition of a 30+ unit apartment complex. The question he and his wife had was on "reverse" 1031 exchanges.

The concept is relatively simple. It is, essentially, the opposite of a traditional 1031 tax-deferred exchange. The difference is that the investor is purchasing the replacement property "prior" to sale of the disposition property. But all the other rules remain. Here is how it works: The investor purchase the 1031 replacement property. A notation is made in the sales contract that the property is part of a 1031 tax-deferred exchange. The investor then has 45 days to identify the properties that are to be sold as part of the exchange, and 180 days (from the day the replacement property was purchased) to finalize the transaction(s).

As I stated at the top of the post, it is the opposite of a traditional 1031 exchange, but with the same rules.

Google Adds 6 New 'Streetview' Cities

From Inman News: Google Maps' controversial Street View feature (for more, see Google Maps Hits the Streets) expands to six more cities today with the addition of Chicago, Pittsburgh, Philadelphia, Phoenix, Portland and Tucson to its database. As a bonus, the images in Phoenix, Tucson and parts of Chicago are all in high resolution and the service has added the ability to pan up in any of the views, which is especially useful when looking at tall buildings.
Here's a quick marketing tip. Google Maps allows you to email a link to any location, so if you have clients currently looking at properties (especially if they are relocating from another city) email them the link to the Street View so they can take a virtual walk through the neighborhood.

BoA, JPMorgan Chase May Announce Record Losses

WOOF! The Financial Times is reporting that Bank of America and JPMorgan Chase are thought to be on the verge of announcing combined losses of $3 billion from mortgage-backed securities and leveraged loans when they report third-quarter earnings this month. The announcements would bring total losses at the world's leading banks from subprime-related assets to $20 billion, said the newspaper.

JPMorgan Chase's losses will come on leveraged loans of $1.4 billion, Sanford Bernstein analyst Howard Mason said in the report. He also anticipates it will suffer an additional $700 million in writedowns on mortgages and mortgage-backed securities, said Financial Times. Bank of America is expected to see around $700 million in leveraged loan losses and mortgage writedowns of $300 million. The newspaper added that the two entities lend significantly to private equity firms, so most of their writedowns will come from leveraged loan commitments they'd have to take a loss on if they sold now.

Yikes. More of the "things getting worse before they get better" phase we are now in. Hold on, it's going to continue to be a bumpy ride!

New PricewaterhouseCoopers Investor Survey Shows Credit Crunch Not Affecting Interest In Commercial Properties

New stats out from a PricewaterhouseCoopers Korpacz Real Estate Investor Survey show that investors remain strongly interested in commercial property despite credit market volatility and concerns about an economic slowdown. The survey adds that the major limitation to investment activity is a lack of properties coming to market. The interest is strongest in office, retail and industrial properties, but there are growing concerns about oversupply in the multifamily and hotel sectors.

In Ohio, particularly Central Ohio, there are definitely more investors than there are properties coming to market. We do not, though, have an oversupply of multifamily and hotels in the region. In fact, pressure on multifamily is driving up rents and values -- good for current investors but making for a more expensive proposition for investors looking for product.

Flippers Fueled Foreclosure Crisis

If you've read many of my posts, you know I hold a certain disdain for flipping. Not flippers per se . . . Its just that the flipping phenomenon is rife with risk for marginal gain. Holding real estate for investment and the plethora of tax advantages is far smarter, and far more lucrative. So some news that came out a couple weeks ago had my blood boiling again . . .

The Mortgage Bankers Association's chief economist, Doug Duncan, said in a speech that flippers and other speculators in single-family homes helped drive up price in many hot housing markets during the boom. As a result, they contributed heavily to mortgage delinquencies in several of those markets. CNNMoney.com reported on this speech recently.

Said Duncan, "Defaults are on the rise in most parts of the country, but . . . it is not always the case of a homeowner losing his or her home." Often it is "the case of an investor gambling on a continued increase in home values and losing that gamble." For example, the MBA reported that as of June 30, in Nevada, 32 percent of all prime mortgages in default and 24 percent of subprime defaults were on non-owner occupied properties.

"Calfornia, Nevada, Arizona and Florida were among the states with the fastest home price appreciation over the last five years. This . . . attracted both speculators and home builders, a volatile combination that led to an over-supply of homes that was beyond the capacity of the local populations to support. When this oversupply became apparent and prices began to fall, many of these investors simply walked away from their mortgages."

Incredible, isn't it?

One thing that we are noticing, as I predicted many months ago, is that the multi-family market is strengthening throughout Central Ohio. Largely because of the credit crunch tied to residential real estate, people who were planning to move into a home from an apartment cannot. And those who have been in their homes and have lost them, or are about to lose them, are moving to apartments. The next time you drive down the road, take a look at what has disappeared -- signs advertising free 1st month rent, free appliances, free 3 months of heat, etc. Owners no longer need the incentives to get people into their apartments.