IRA Investing and the Growing Short-Sale Real Estate Market

May 4, 2010 by dbdouek

People are hearing more and more about “self-directed” retirement accounts from their bank or brokerage firm.    These accounts generally, allow investors to select from a menu of investment options, like many are accustomed to seeing from 401(k) plans.  In some cases, an account holder might even have the option of selecting the specific stocks or funds that the IRA will hold.

As a result people often remain unaware that the law only restricts individual retirement account (IRA) investment by prohibiting investment in “certain collectibles” and “life insurance contracts.”  IRA custodians, however, are permitted to impose additional restrictions on investments.  For example, due to administrative burdens, many IRA custodians do not permit the account holder to invest in real estate, while the law only prohibits the purchase of the Picasso hanging inside.  The lesson here is that just because an investment may be legal, an IRS approved custodian is not required to offer the option to account holders.

In 2009, the majority of Retirement Assets were held in IRA’s; $4.1 trillion at Q3.  Mutual funds held 46% of all IRA assets, while another 36% were invested in Securities through brokerage accounts.  In Q4 2008 the S&P 500 saw a 21.9 point drop, and the twelve month period ending Q3 2009 equities saw a 37 point drop. 

Firms like Reins Financial Group in New York (www.ReinsFinancial.com), help individuals to take active and efficient control of their retirement dollars.  This means that they put investors in a position to invest in alternative investments, like, real estate, private placements, oil and gas partnerships, and commodities without triggering early distribution penalties and income taxes.   By utilizing an IRA LLC strategy, Reins IRA holders can invest in alternative assets with the ease of writing a check. 

With an IRA LLC structured by Reins Financial Group you can hold any asset the law allows, invest with the same ease and efficiency you would with non-retirement funds and never pay transaction or asset based fees.  When you want to invest you simply write a check.  Jim Reid of Diane Turton Realtors, working with Reins, recently closed a short sale in Palm Beach on behalf a client who used IRA funds to complete the purchase.  “By working with an experienced short-sale realtor, IRA investors can tap the purchasing power in their retirement accounts to purchase investment real estate with ease,” said Reid. 

This provides an incredible opportunity for savvy IRA investors to purchase properties at bargain prices.  Distressed property sales accounted for 48.1% of home purchase transactions in February 2010, a large jump from the last recorded number of 37.3% in November 2009, and the highest seen since last July, when stepped up government efforts like temporary foreclosure moratoriums reduced the number of properties coming to market. 

This growth was accounted for largely by a growth in the short sale market, which represented 17.1% of the home sale market in February.  Because losses to lenders are generally lower on short sales than foreclosures, the government and the lending institutions are pushing programs to facilitate short sales.

People interested in investing in short sale properties may contact Jim Reid, of Diane Turton Realtors, at (561) 746-4466.

David B. Douek is a lawyer by training, and founder of Reins Financial Group, he can be reached at Info@ReinsFinancial.com.