IRA Investing

Are You Earning a Minimum 10% Return on Your IRA?

There are numerous ways to use your IRA to invest in Real Estate.

Here are the 2 ways we recommend:

1). Be the Note Holder:

Use your IRA funds to be the lien holder or note holder for another investor. Here’s an example of how it works: An investor purchases one of our properties for $45,000 which appraises for $65,000. They put $10,000 down and finance the $35,000 balance on a land contract for 8% amortized over 30 years with a 5 year balloon. The land contract is recorded and the note holder is the first lien holder. After 5 years, when the balloon comes due, the buyer has to cash out the note holder or the note holder can extend the land contract.

The risk to the note holder is low because the buyer put money down ($10,000), there is equity in the property (appraised for $65,000), and the investment is secured by real estate (unlike the stock market). In the event the buyer defaults, the $35,000 investment is foreclosed on and the property is re-sold again or kept by the note holder. The pros are that this method is more passive less involved. The cons (if you want to call it a con) is the note holder only realizes an 8% return.

2). Be the Buyer:

The 2nd option we recommend is to use your IRA to purchase our rental properties. I will give an example of a property we sold to an investor, Judy B. of California. Judy and her partner purchased 57 Putnam in Pontiac, MI. for $51,000 using their IRA to fund. Here is how their monthly cash flow looks:

Now lets look at an annual return-on-investment (ROI).

$489.36 x 12 months = $5,872.32 annual cash flow

$5,872.32 / $51,000 = 11.5% ROI!

Now this is assuming 100% occupancy and no repairs or additional costs. However, there are additional benefits that out way everything else.

• Depreciation: One of the greatest perks of owning real estate is the depreciation write-off which lowers tax exposure. This sometimes can be a greater incentive than the cash flow.

• Appreciation: Let’s say Judy holds onto this property that she bought for $51,000 using her IRA for another 20 years. With appreciation and inflation, let’s say she sells it for $150,000 (not unlikely)! That profit goes tax free into her IRA! Now what is her ROI?

Here’s what Judy says about her experience:

“My IRA was losing money year after year. Now I’m earning a great return by investing in real estate and it was really easy to do!” - Judy, CA

Whether you’re the note holder or the buyer, now is the time to take advantage of this opportunity!