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Self-directed IRAs buy International Real Estate Investments

Aug 17, 2007
When people begin to consider investing in real estate, they usually think of investing within or near their own cities. While investing in your immediate area can be beneficial because its familiar turf, it may create a narrow perspective of the overall available real estate market and rule out far better options for ROI. A broader scope of opportunities entails crossing county, state, and perhaps even international, boundaries. In this article, we will explore purchasing international real estate with an IRA,. With the property being held within an investment portfolio, this option can in many instances enable greater diversification, tax rewards and other benefits for the investor.

It is often the case that self-directed IRA holders are told of laws concerning owning real estate within IRAs, prohibiting ownership of foreign real estate and strictly limiting ownership of domestic real estate. This is not entirely true, as evidenced on the IRS website: http://www.irs.gov/retirement/article/0,,id=111413,00.html. The actual self-directed IRA IRS rules are less restrictive than those of many major self-directed IRA custodians, who aim to standardize and limit the types of transactions that they conduct. With such mixed messages, it is for good reason that the public has been confused about what is and is not allowable. With the right structure in place, your IRA can own international real estate-whether it's beachfront property in Costa Rica or a rental villa in Panama.

The key to loosening the restrictions on your IRA involves some very specific steps-first, opening a self-directed IRA, and then forming an IRS-compliant Limited Liability Company, or IRA LLC. In addition to offering freedom in making your own investment decisions, a self-directed IRA LLC gives you the ability to avoid 90 percent of the fees you might otherwise have to pay. Putting this structure in place allows you to have checkbook control over your IRA, meaning that you are relieved of having to ask your custodian to write a check (for which you must pay them a fee ) each time you wish to make a transaction.

The way that the structure works is really quite simple. The LLC itself would own the International real estate property, and the individual's IRA would own the LLC. By maintaining checkbook control over the IRA, you are able to pay any expenses associated with the IRA real estate investments directly from cash within the IRA, in compliance with self-directed IRA rules set forth by the IRS. Though some may question the legality of the IRA LLC structure, the courts have consistently upheld it. If you are still uncertain, a good advisor will be able to direct you in the establishment of such a structure and provide examples of others who have already done so.

When you do make the decision to start investing in international real estate, your first concern will naturally be the potential return on your investment. Following closely, however, should be a comprehensive study of the stability of the country in which you are considering investing. A government that is susceptible to coups and civic strife will not be your best option. On the other hand, there is an abundance of foreign markets that are not only stable and low-risk, but poised for tremendous growth. Familiarity with and thorough research of an area are always advised, as well as securing a reputable advisor to help guide you based on your personal goals, interests and needs. When you are informed and take the proper steps, expanding your investment options outside of the country can open up many exciting, untapped areas to invest in for retirement.

Copyright 2006 Daniel Cordoba, CEA and contribution by Joshua Geary of Best Online Results
About the Author
Daniel Cordoba is a Certified Estate Advisor and Principal of Asset Exchange Strategies, LLC. Asset Exchange Strategies, LLC through its website Real Estate IRA Newsletter helps investors gain greater control of their self-directed IRAs.
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