Buying a home with an IRA is becoming more attractive to investors who are upset with the stock market. The process has a lot in common with a home which is bought with Mortgage Assistance. In that there will be additional paperwork which needs to be sent to a third party.
I just finished representing an investor who used his IRA to buy a property. The problems started immediately and did not end for two weeks. The contract had to be rewritten to comply with IRS rules. We could not get by with the buyers name and the words “and or assignee”. The contract had to be re-written to say “BLANK TRUST COMPANY CUSTODIAN FBO CLIENT NAME IRA.” This was after the client found a Trust Company who would allow him to use his IRA. The company he had his IRA with turned him down.
Every time he talked with the new Trust Company it was with another representative. All documents and forms requested by the Trust Company had to be sent two to three times to the Trust Company. The Trust Company wired the money to closing a full week before closing. This was because they keep saying the paperwork had been signed, but then never signed it. When my client asked for the paperwork to be signed one time, the company sent him a list of all the authorized signers for the documents. Another time he called from the Title Company with the idea that a conference call could take care of all problems.
In the end the home did close. My client bought a home for $32,500 about 50% of what it is worth repaired. He put $7,000 into the home and rented the home the minute it was ready for $750 a month. He is a contractor and the work crew literally started working the minute the home funded. Not a bad return on his investment.
There are pitfalls to using your IRA. The rules are complex according to IRA expert Ed Slott of Rockville Centre, N.Y., and the stakes for running afoul of them are high. A misstep can disqualify your IRA’s tax-deferred status, forcing you to pay tax on its full value plus penalties if you’re under age 59½. If you want to invest in real estate in your IRA, Slott suggests real estate investment trusts. Always consult your accountant to make sure the IRA is set up properly.
Call Bill Edge at 713-240-2949 to see Houston homes in 24 hours or less.
Source; Ed Slott and Company, LLC