How to Leverage your Self Directed IRA funds in Real Estate – The rules of the game.

Posted by Owen McGab Enaohwo on Jul 13, 2010 | View Comments

The Employment Retirement Income Securities Act (ERISA) made you responsible for your retirement savings, plain and simple! How you invest your funds that you have set aside for retirement is at your discretion. The law excludes only two types of investments under the ERISA and IRS Codes. These investments are: 1. Collectibles and 2. Life Insurance Contracts

The rules of the IRA investment game are so simple it’s stupid – in a good way!

Essentially, you are prohibited from engaging in “self-dealing” transactions. Simply stated, you should invest your Individual Retirement Account (IRA) funds to increase the amount in your IRA, not to spend your IRA on yourself or those related to you. Each transaction you make should solely be for the benefit of the IRA itself. You are allowed to invest your IRA funds, such that the investment makes your IRA grow, meaning all profits from the transaction that your IRA funds are used in goes back to your IRA.

Investing your IRA funds so that the return on your investment makes your IRA funds grow will allow you to grow your retirement funds at a pace that is comfortable for you on terms that you can understand. The ERISA law has been in effect since 1975, yet only less than 5% of all IRA holders are aware of this.

Most IRA holders entrust their IRA funds to fund managers who manage the funds for them, investing their funds on stuff that are hard to comprehend. With the crash of the economy and the credibility of Wall Street being “nothing to write home about”, many IRA fund owners are looking into Self Directed IRA Investments.

The total amount of IRA funds in the hands of employees is estimated to reach $2 Trillion. With only 4% of these invested on Self Directed IRA Investments, those of you who have not yet done so are relying on old fashioned investment methods that have brought the same results over the years – investment growth that is just a little better than a bank deposit, and a tad more riskier than a slot machine in Vegas, leaving many IRA holders out in the cold when the market crashed more than 18 months ago.

The current real estate market and the opportunities therein

The real estate market is at the bottom now. Whether we like it or not, people will be looking for homes to live in. That is the American Dream, and no one is giving up on this dream anytime soon. With so many houses up for sale, it has essentially become a buyer’s market and there are hot deals to be had. The real estate property value have fallen due to several distressed properties on the market at the same time, which makes now the right time to invest in properties; as in you can buy them at discount prices. That said you still need to make sure that you only invest in the right types of properties or work with real estate investor who have the experience and understanding of how to invest in this market. I am sure you will agree with me when I say Warren Buffet is indeed a savvy investor; one of my favorite quotes from him is “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” What this means to me and should mean to you is that even though most uninformed people including the news media says investing in real estate in this market is too risky, you should realize that the more people running scared, the more you can cherry pick the best deals to invest in using your IRA.

So how can you invest in real estate using your Self Directed IRA?

That is a good question, one that I answered in a previous blog post titled “Now is the time to set up your passive income strategy through Real Estate Investment.” Check it out and let me know what you think

Questions for you:

Does investing in the stock market seem like a wise move these days? Do you feel the need to fully control what you use your retirement funds to invest in?

Visitors who read this post also read:

• Now is the time to set up your passive income strategy through Real Estate Investment.
• How does a short sale affect my taxes? The two answers to your question
• Is a Short Sale Right for You? Read and then Decide!