Invest Creatively

You know it's a buyer's market. You think it's a great time to invest in real estate because you know that prices are low and are bound to turn around at some point. But you don't have enough cash. Or you're not sure the rent you'd receive would cover the mortgage. But you know the appreciation over time would be worth investing now. If you're interested in investing in real estate for the long-term but aren't sure how to fund it, consider an often-overlooked asset that can be used for investing in property. Your retirement fund.

Since 1974, the IRS has permitted individuals to self-direct their Individual Retirement Accounts (IRAs). The majority of the population will open a brokerage account and buy some equity shares (stock) in a company they think will be a winner. They'll buy shares of a mutual fund or invest in the money market. Or they'll invest their 401K in a few of a handful of funds offered by their company. And the more conservative investor will choose notes and bonds. But a retirement account allows you to invest in ANYTHING that is held for investment purposes. So why limit your investments to financial securities? It is unbelievable to me that only 3-4% of existing IRAs are invested in alternative assets!

Before I go further, let me clarify to avoid any confusion. Please understand that what I am talking about is different from BORROWING from your IRA in order to purchase a home. I'm referring to actually investing your IRA funds in a piece of real estate which is to be held as an investment only. You don't borrow from the IRA and pay it back; you are directly investing the IRA funds into the property itself, rather than a stock, bond, or other similar security.

There are a number of restrictions on investing your IRA in real estate, however if you find a great opportunity, it is well worth speaking with a qualified person on whether this can be done or not. You'll need to speak with several professionals, including an attorney, CPA, financial advisor, custodian, and of course a realtor to help you find the property and deal with processing the transaction. But it can be done!

Your options span from a rental property in Malibu, a strip mall in Arizona, vacant land in Montana, pre-construction in Chicago, a fixer-upper elsewhere, or even a hog farm in Iowa. Anything goes. The basic rules require that the property must be held for investment purposes only - that is, you and/or your family cannot live in it or gain any benefit other than the cash flow (which flows back into your IRA) and appreciation it provides.

Next time you open your retirement account statement and cringe at the dwindling numbers due to today's economy, think about what other options you have as far as investing in a tangible asset that will provide long-term appreciation.

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