Some Quick Facts About IRA’s In America
* Fact: According to some estimates, 96 % of IRA holders only invest in plans offered by their custodial company (bank, broker house, etc.) and fewer than 4% self-direct their IRA investments.
* Fact: Average of all IRA returns on investment nationwide for investments such as stocks, bond and mutual funds are currently between 4-9% per year.
* Fact: Custodial companies and brokers make millions of dollars in fees, charges and most of all, in the spread they keep between what you should be earning and what they “pay” your IRA for using your money.
Is There A Solution?
The IRS allows your IRA to earn tax free or tax deferred income with NO limitations on how much you receive— you can earn hundreds of thousands of dollars with no tax consequences whatsoever while investing in real estate.
When banks, brokerage houses or other financial institutions are the trustee/custodial companies (whoever your IRA is placed with is acting in this capacity), they usually discourage their IRA account holders from taking the self-directed route. Why shouldn’t they? They’ve been happily selling their in-house investments for a long time, often as a common practice.
Does your bank ask you what you want to invest in? Or do they just tell you their interest rate on your IRA? When you move your IRA to a company that allows you to self-direct it, they lose all those easy fees and profits they’ve been getting from the investments they’ve been selling you all along.
However, it’s important to note that the companies managing self-directed IRAs do not give investment advice, and they do not have their own “programs” to sell to you! They will answer your questions, but make no mistake:
YOU are in control of your financial destiny and all the decisions related to your investments with your IRA, they just follow your orders. This is obviously something that can be done when you invest your IRA in real estate.
But Not Too Fast!
What do you know about real estate investing? Do you know what is required in order to purchase at a deep discount while making sure the numbers work based on taxes and other related debt minus the potential income profit? How about Sydney renovations, managing tenants and keeping up the property when there are repairs needed?
Here’s another fact for you; most investors who offer their IRAs as loans never seem to know what to do if that loan comes back unpaid by the borrower. In other words, if the borrower defaults and the IRA investor winds up with the property back. Don’t let us scare you to death too fast because there’s a massive advantage in investing your IRA in real estate in our current market.
But going it alone without a proven system can be very costly.
A Different Approach
But what if there was a hand’s off approach that countered all of the negatives we’ve talked about above? What if there was even more to that “hand’s off approach” that could allow you to help the community you’re investing in?
What if there was even a “hidden market” in real estate, one the gurus and big developers pass right by? One the quick-flip investors and slumlords tap into somewhat, but with no greater vision than how little they have to spend and how much they can make on each deal.
In fact, some estimates show as much as a 15-year backlog in this massive market, with millions of working-class families clamoring for the few quality homes available in each market. A high-demand market that is simply not being filled… and this market pressure means tremendous opportunity.
It’s no secret that most lower-to-middle income Americans have found themselves increasingly squeezed out of the “American Dream” of home ownership. They’ve been left behind by traditional real estate investors and developers, whose focus on ever-bigger, ever-more expensive houses has almost totally ignored this huge market need.
This, along with predatory, subprime lending practices, created the false “bubble” market economy that finally burst in Spring 2007. The sad result is a housing market over-saturated in the $250,000 and up houses, and a glaring deficiency in the under-$150,000 market.
If you read between the lines you’re already sensing the enormous potential here.
Imagine a socially-conscious company that targets neglected urban areas, those that have a great inventory of quality, affordable homes but haven’t had the attention of many investors other than the smalltime, quick-flip crowd for years. There has been no overriding vision of change for the community itself… and that is what it takes to create new markets and increased values.
The areas we’re talking about often beat out other area communities in the “location, location, location” department too, with easy access to business centers, corporate headquarters and nightlife… yet many locally-owned businesses are nearby, struggling to survive. They’re often have excellent public transportation and other services… but in cities across the country, these “Main Street America” communities have seen steady declines over the last 20 or 30 years.
The homes usually have solid, quality construction from the 1920s, 1930s, 40s, 50s, 60s even 1970s. The neighborhoods often have tree-lined streets and parks. The homes are much more modest than the “McMansions” so prevalent today. They’re affordable, too. Perfect for blue collar, working class families…but again, a master vision is required to make the area desirable again.
But let’s throw one more iron in the fire; what if this “hand’s off” approach came with a guaranteed minimum return on investment?