Fields of Real Estate Sales & Construction
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November Newsletter

November 2014

FIELDS OF REAL ESTATE

NEWS YOU CAN USE


Cold and windy seem to be our daily weather forecast! With Thanksgiving right around the corner I guess it is to be expected. Speaking of Thanksgiving...we all have so much to be thankful for! The elections are over, no more political ads!! That is a thankful thing!! But seriously,we as Americans are so much better off than most of the others in this world. Please consider sharing some of your bounty this year with those less fortunate. There are food pantries, homeless shelters, Operation Shoe Box, Toys for Tots, Salvation Army, churches, the list is endless as to possible places to donate. It matters not which one you pick. Share and you will feel so good!!!

We at Fields of Real Estate are thankful for you our loyal customers. Without you, there would be no us!!

Please call us no matter what your real estate needs are. We are eager to help. We are full time agents who care about the people we serve. Kris, Paula and I wish you and your family a Blessed and happy Thanksgiving.

FYI...Still have some choice lots in Duck Creek Estates. Motivated developer would like to end the year with them SOLD!! Call us for details.

For our November Buyer & Seller specials, we will donate $100.00  to a charity of the buyer/seller's choice for all closed transactions in the month of November.

 

SHOULD YOU INVEST YOUR IRA IN REAL ESTATE?

The financial markets have been  finicky and lackluster over the past several years, with many stocks barely managing to break even after weathering the last financial crisis in 2008. Pension plans have traditionally invested in stocks and bonds with a moderate to low risk appetite, but if you have been keeping track, you have seen that the returns have been and continue to be dismal.

On the other hand, according to Kiplinger, the real estate market may be reviving, and many investors see this as a golden  opportunity. Investing in real estate as a part of your retirement planning requires you to learn the governing rules and regulations that will affect your decision.

Some conventional IRA experts say that it is better to stay away from investing in real estate through IRAs due to the strict government control over them and the hefty penalties imposed on wrongful transactions. However, if you have a bit of help from a knowledgeable adviser, do your own due diligence, are aware of the  rules governing IRAs and have a keen eye to spot real estate deals, then real estate investing may be the way for you to further diversify your IRA account.

In order to make a real estate investment with your IRA, you need to make sure your IRA has the right type of custodian-- one that will allow you to make alternative investments. However, it is important to keep in mind that the custodian of the IRA, when you choose to go self-directed, only carries out the details of your investment transactions at your specific direction. Therefore, the custodial firm you select for your account is not responsible for bad investments or decisions you have made. Your custodian is essentially a third party to your investment selection.

What Real Estate Qualifies For Being Purchased Through an IRA?

A real estate investment made to a self directed Roth,IRA- if you plan on holding it directly in your retirement portfolio, should only be rented out to a non-disqualified person. It should be purely a business transaction, where the rental or lease income from the property goes back into the IRA account. The real estate should not serve a primary or secondary use for the IRA owner, and should not be used as a vacation home.

Neither can you use the IRA property as a personal residence or for the benefit of any disqualified family member, even if you or the disqualified family member pays at or above fair market rates to use or rent out the IRA property, since this would also be prohibited transaction.

All the taxes, expenses for property repairs and property maintenance work should be paid directly from your IRA account. Even if you don’t manage to find a tenant immediately, then you will have to continue with the payment of taxes  and mortgage, so your IRA account needs to be flush with funds to finance the continuing expenses a real estate purchase will incur.

Most custodians disallow or disapprove of a mortgage facility to fund the real estate investment and only allow non-recourse mortgages which are more expensive. Non-recourse mortgages may incur a higher rate of interest and generally require more money down.

Other guidelines to consider when making an investment inside your IRA include:

  • Your IRA cannot indulge in any property transactions with disqualified persons, including immediate family or a company in which you or a family member hold a specified percentage of shares.
  • Neither you personally nor other disqualified persons can give a loan to the IRA for making any investment or purchase.
  • The IRA is the owner of the purchased property, and all legal documents will be executed in the name of the IRA.
  • All income from investments made through the IRA should go back to the IRA account.

What Kind of Property Is Suitable and Can be Purchased Through the IRA?

You can purchase various types of real estate through your self-directed or Roth IRA, including apartments, condos, multi-apartment buildings, mobile homes and commercial and retail spaces.

Since it is not possible to reside in or use the buildings owned by the IRA for personal purposes, they need to have good potential as rental or lease properties. If you have a property management consultant working for you, they might be able to work out a good deal for you. Reliable, consistent and quality tenancy is essential for your rental property to achieve good returns.

A reputable property management company service will help to ensure you need not have to worry about other management problems like leaky pipes or troublesome neighbors. However, the property management fees should be paid out of your IRA  account.

Rental Market Considerations

Buying property to rent is very different from buying property for self-use. Your rental residential property need not be located in the same suburb or close to where you live. 

Research the property and rental values in your state or county. You will be able to spot areas where there is a strong and sustained demand for rental homes.

Rental values are also high for areas that boast good connectivity with city centers or commercial and corporate hotspots. A boom in employment may also trigger a higher rental demand. Small towns and suburbs are seeing tech giants and start-ups setting up offices, which in turn has resulted in a demand for rental properties from young professionals.

University towns generally have good demand for condos and apartments.

When buying property for investment purposes, it may also be good option to buy in an upcoming area with good connectivity to urban nerve centers. Proximity to hotspots may also be a good sign that the next region to go upscale will be yours.

Commercial Properties Can Give Sustained Returns Too

Commercial properties can also generate good rental returns, if purchased properly.

Some of the best properties you can buy are those which house good and stable long-term tenants. For example, a property leased by Home Depot or Lowe’s will not see any late payment of rent or the tenants moving out. So, if you manage to find such an opportunity or locate a good storefront property, then this may also work for you.
 
In addition to the kind of tenants you would like to have, you need to take into account market conditions. Do your research and find out how other businesses in the region are faring. Are the business operators or storefront managers planning to renew their lease? What are the income levels of the residents in the area and what are their lifestyles? Do the current tenants pay the rent on time?

The financial health of the businesses that exist in the commercial hub will give you a very good idea of the returns and the growth potential of your investment.

Real estate has traditionally given adequate returns. However, a profitable investment won’t just happen on its own. If you plan to invest in real estate, then you should thoroughly complete your own due diligence, research your target market, speak to experts, hire an advisor, read up on the related news and understand all the legal regulations before taking the plunge. As with all other forms of investment, the educated & well informed investor who is willing to take calculated risks,  makes the most from his/her dollar.

And one last piece of advice, PLEASE consult with a real estate attorney and a real estate tax accountant before you dive into investing with in real estate with your IRA.

GOOD LUCK!!! Call Fields of Real Estate to help you find these investment properties.


 

Fields of Real Estate Sales & Construction
N2657 County Rd N
Appleton, WI 54913
Office (920) 358-9003  Fax (920) 687-0358
Kris' Cell (920) 707-3002
Judy's Cell (920) 242-0423
Contact us for more details!