Q: Bob, love your columns. Heard through the grapevine you can buy real estate with your IRA, any truth to this, and if so do you have any case studies?

Jim T.



A: Wow, Jim I had to do a little more research for this but the old saying that “ya’ learn something new every day” seems to be true? Here goes.

Something your stockbroker won’t tell you– you can buy the retirement home of your dreams with your IRA.

Traditional and Roth IRAs can purchase all kinds of property, from homes to apartment buildings.

By owning real estate, (this market will come around) you diversify away from stocks and bonds and keep (I hope) ahead of inflation.

Although banks and brokerage firms typically don’t offer this alternative-it is costly to administer and doesn’t generate trading commissions– it’s easy to add a real estate strategy to your retirement plan. Reasonable allocation: 15 percent or more of your retirement assets

BEWARE: If you buy a home for retirement, you can’t live in it until you take its entire value as its distribution from your IRA after age 591/2.

Until then rent it out to a permissible third party profits are reinvested in your IRA. Case studies below.



Residential property

Harold dreamed of retiring to Houston, Texas, near his sister. He bought a house there using money from his IRA.

PURCHASE PRICE: $120,000

EXPENSES: $4,500/year for taxes, insurance, utilities, etc.

NET OPERATING INCOME: $7,500/year (annual rent of $12,000 less annual expenses of $4,500

ANNUAL INCOME: 6.25 percent (net operating income divided by the purchase price). Assuming that the house in value by 6 percent a year (will happen again?)

Harold ends up with a 12.25 percent annual return

Harold achieved his goal by renting out the house until retirement and then taking the house as a distribution from his IRA. His tenants moved out. He moved in and became the new owner instead of his IRA.



Commercial property

Steve’s IRA purchased a building that housed a Pizza Hut restaurant in Malta, Mont. The tenant was three years into a ten year lease with options to extend the lease for five years.

PURCHASE PRICE: $325,000.

EXPENSES: Nominal. Utilities, taxes and insurance were paid by the tenant.

NET OPERATING INCOME; 9.23 percent

While Steve’s income is at the low end of the average for commercial property (the range is 8 percent to 14 percent a year), Steve liked the security of the long term lease. Costs also were contained because the tenant was responsible for most expenses.

Steve got the building for less than the $350,000 asking price Because he agreed to pay cash and was able to close quickly. He still owns this building.

SET UP YOUR PROGRAM: Transfer your existing IRA or roll over the money from a qualified

Plan a 401(k) or a pension- to a special account called a SELF-DIRECTED IRA. It should be overseen by a custodian, such as a bank, which receives an annual fee or 0.5 to 1.5 percent of assets. Fees decline as assets increase.

Will finish next week. Need to get some more numbers for you to call.



Have a real estate question? Write, call, fax or e-mail:



Bob Jeffries, Realtor

Century 21 Birchwood Realty, Inc.

4040 Del Prado Blvd., Cape Coral, FL 33904

239-540-6659 Office • 239-542-7760 Fax

e-mail: bobjeffries4@juno.com

Web site: c21birchwood.com