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How To Buy Real Estate in Your IRA

Here’s the big question that confuses many: Can you have real estate investments in your IRA or Keogh? YES. You can. So that was easy, now what?

The next question arises about leveraged real estate and how is it done. Yes. You can leverage real estate in a retirement vehicle, but it is so important to do it right, and all too often it isn’t. So rather than go into the details of how it’s been done wrong, let’s just get it right.

Always Vest in the Name of the Trustee

IRA’s have custodians or trustees, as do Keogh’s and other qualified plans. Vesting must always be in the name of the custodian or trustee. IRA’s never have individuals as custodians or trustees, unless an individual is properly certified under IRC 401 12(n) as a person who qualifies as a non-bank trustee. If you are one of those, you already know all this. If you are not, read on.

If you decide to buy property for the benefit of your account, and somehow the title or escrow company got your name on it rather than the trustee, that needs to be changed, even if it means starting the title/escrow work over. If you are the trustee of your qualified plan, the title must be in your name as trustee for the appropriate type of plan you have. If you are a co-trustee, yes, everyone has to be on title.

The Plan Must Make the Payments

Now back to leveraging. Your IRA or plan makes the payments. The payments are made from your account or plan, from whatever available cash there is to pay for the underlying debt. Remember that the property that you bought is the collateral for the loan your plan is paying for. So if title is vested properly, and I now am sure no one will make the improper vesting mistake, who makes the payment? The owner.

Yes, many times third parties make the payments, many of us have been there, but in this case it’s serious. The plan has to make the payments. If that means making contributions, or selling other assets in the plan to make payments, so be it. If you don’t, you’re in default, and that means that the asset will be departing from your portfolio unless it’s cured.

Should Your Retirement Plan Invest in Real Estate?

So that was easy. Now the part that becomes a little more interesting: Should you have real estate in your IRA, SEP-IRA, Keogh, or other qualified plan? The answer is yes, no, maybe so. OK, it’s not a good answer as such, but let’s examine the real situation.


If it’s your IRA, it’s your retirement. You should be a savvy real estate investor, or really know your way around real estate and notes. Also, remember your beneficiaries. Many times we have seen beneficiaries holding notes and property that the spouse had not necessarily paid real close attention to. In some cases the information left behind was not in the condition it should have been in to leave behind to anyone. Our suggestion and opinion is that real estate investments in an IRA should be made by professionals. If you fit in this category, in our experience has been great for many as part of a balanced portfolio or investment strategy.

Keogh’s and Qualified Plans

Read IRA’s directly above. If you are alone it’s one thing, but when you affect the retirement and lives of others it becomes somewhat more complicated. If you are making decisions in a pool for your employees, the quality and type of deal you are making is significantly important. Your employees, (including spouses and children) will be impacted by the type of portfolio you put together. Usually a retirement portfolio is composed of stocks, bonds and money markets. If you use mutual funds, it works similarly, a stock fund, a bond fund and a money market fund. Within those classifications one can diversify. If you make the investment decisions, you need to be very careful about diversifying. If you want to include real estate, you certainly may, but balance it in terms of risk and proportion in your portfolio. Be certain that the investment is arms length, and well considered.

One thing that you should always consider is getting professional advice. This means all the advice, and be sure it’s documented. Real estate can be an excellent component to a retirement plan, it just has to be done properly. If your plan allows self direction, meaning that you permit your employees to direct their own investments, then you need to make sure that they (and you) receive the proper information about investments and make that information constantly available. Information and education are key to reducing your liability over the long term also.

So can you have real estate in your IRA and Qualified Plan? Yes. But please follow the rules and get good advice, and it will pay back big dividends in more ways than one.

Office: 480-213-5251

The Truth About 4-Family Investment Properties

Many of 4-family properties sell at a price where the purchasers will not see a dime in positive cash flow for 10 years or more. Why? In my humble opinion, there are several reasons. First, 4-families are very much in demand among newer investors who, in all honesty, don’t have the first idea how to properly evaluate cash flow. These buyers fall into the trap of determining the value by looking at what other people have paid for comparable 4-families to determine value, rather than doing a cash flow analysis to see how much money they’ll make at a particular purchase price. As a result, they pay what everyone else is paying—which, as you’ve already seen, is often more than one can pay and make any money!

Compounding the problem is the fact that many 4-families are sold by agents who also have no investing expertise. I’ve had many an agent “prove” to me that a 4-family is a good deal because it has a positive cash flow after mortgage payment, taxes, insurance, utilities, vacancy loss, and maintenance fees are taken out. What they don’t seem to understand is that, as the owner, I would also have to pay for extermination, evictions, mileage and wear-and-tear on my car, bank fees on my business account, accounting fees to keep my taxes straight, turnover and advertising costs associated with those vacancies, and the all-important replacement reserves for items that wear out slowly, such as boilers, roofs, and so on. When I show an agent that my real, true-to-God expenses on a particular building will outstrip income by 25% or more, they invariably tell me that I’m exaggerating—after all, the CURRENT owner makes money hand over fist! (Sure he does—he paid $20,000 for the building in 1954!)

Another reason for the gap between selling price and price at which a buyer could make money is that 4-families seem to be a favorite of super-conservative investors, many of whom pay all cash or a very hefty down payment, and, as a result, are able to get cash flow out of even the most overpriced properties. Think about it: if you didn’t have a mortgage payment on these properties you’re looking at, would they make money? Of course! Would they make a decent return on your investment? Heck no! But some investors aren’t looking for double-digit returns; they’re looking for an attractive, easy-to-manage property where they can sink their money and get a (more-or-less) guaranteed return.

My suggestion is this: leave the 4-families to the under-educated and over-conservative, and focus on the slightly larger properties that small investors like yourself can both afford and actually make money on. Five to 12 unit buildings give you the benefits of size plus eliminate the competition from over-paying amateurs and the better-funded corporate investors (who want much larger properties. And as an added bonus, it’s much easier to negotiate owner financing on these properties!

Office: 480-213-5251

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