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How should you choose your IRA Custodian for your investing deals?

July 1, 2014 by bostonareia Leave a Comment

Choosing an IRA custodian is as important as choosing investments. Some custodians do not allow alternative investments to be acquired as assets using your IRA. Some self-directed IRA administrators that allow alternative investments (such as real estate investing) may restrict the types of investments they allow as holdings. Additionally, there are strict rules and regulations one must follow when purchasing assets. If you make the mistake of acquiring an asset your custodian does not allow, you and your IRA may suffer harsh penalties handed down by the IRS. The same is so if you perform a transaction that falls outside the boundaries set forth in the rules that govern retirement funds.  Access the Advanta IRA ppt that Kevin Collins presented at our meeting in June –  Retirement Revolution Presentation

If you want to control your own investment funds in your IRA, you must first make sure you open an account with an administrator that facilitates self-directed IRAs. These accounts allow a myriad of alternative investments in them, such as real estate, private lending opportunities, precious metals, oil and gas options…and much more. As the account owner, you have the freedom to choose your own investments to build wealth toward retirement. The custodian acts only at your direction to acquire assets in your account.

Even though laws governing IRAs allow real estate and other non-traditional investments in your account, not all custodians allow those assets. A recent example of this was illustrated by the tax court in a proceeding filed by Guy Dabney. Although Dabney familiarized himself with IRS allowances of assets in IRAs, he failed to comply with the rules of his IRA custodian, Charles Schwab & Co., Inc., who does not allow real estate in the IRAs they administrate. Even so, Dabney performed an action to acquire the real estate that he thought would constitute a permissible trustee-to-trustee transaction. He had Charles Schwab wire $114,000 directly from his IRA to the company selling the property and asked the property be titled “Guy M. Dabney Charles Schwab & Co., Inc. Cust. IRA Contributory.” The purchase was made, however, the property was accidentally titled in his name. Dabney was able to have that clerical error officially fixed, but Schwab still sent Dabney a 1099-R form, declaring he had taken an early distribution which was taxable to him as he was not yet of the age of 59 1/2. Dabney did not report the withdrawal on his income tax that year, stating the real estate purchase was made by the IRA and / or should be considered a trustee-to-trustee transfer because of the way the property was acquired.

In considering the case, the IRS made several determinations. First, Schwab does not permit real estate investment purchases or holdings in their accounts; second, the title company to which the $114,00 was transferred was not, in fact, an IRA trustee and therefore, no trustee-to-trustee transaction was performed. There were a few other reasons the tax court based their decision on, which can be read in full in an article published by Parker Tax Publishing, and the withdrawal was considered an early distribution—and taxable for Dabney under IRS regulations.

The main takeaway here is that even though self-directed IRAs give you control of your investment decisions—you are responsible for adhering to your IRA custodian’s own set of rules regarding investments they will allow your account to hold. Not all custodians are created equal! Due diligence in researching a custodian that is a good fit for your investment endeavors is critically important. Dabney could have avoided his unfortunate complications had he decided to roll funds from his Schwab IRA into a self-directed IRA administered by a custodian that allows real estate assets and made the purchase from that account. Be sure to select a firm that is accessible, willing to discuss your transaction, assist you in completing the required forms, and ensures you provide the proper documentation. Most importantly, a firm that give you and your retirement portfolio the personalized service you deserve.

With Boston AREIA’s vendor, Kevin Collins of AdvantaIRA, you will get the personalized service you are looking for when doing your real estate investing deals in and around the Boston area.  If you would like to learn more about how self-directed IRAs can build wealth toward retirement, please contact Kevin Collins at AdvantaIRA Trust by calling 617-830-1070 or emailing Kevin@AdvantaIRATrust.com

Filed Under: Uncategorized Tagged With: 12/31/2012 deadline for gift tax, Advanta IRA, an advisor you can trust, ask your family for money, be the bank, Boston Area real estate investors, boston area real estate investors association, Boston Commercial Real Estate, Boston real estate investors, bostonreia.com, flipping properties, investing through your IRA, MA Shortsales, real estate investors association, real estate mentoring program, real estate mentorship contest, real estate social media, The meaning of fear, unsecured loans, www.bostonareia.com

Diary of a Newbie Real Estate Investor

May 5, 2014 by bostonareia 1 Comment

Bernadette Trafton, Chief ConnectorGood morning folks, Well Mike and Jacqui have been moving forward with their real estate business.  Their website is almost complete, they’ve been doing direct mail marketing and Mike was able to go to a property with Peg and a few others with the agent he’s working with.  A little over a month ago, I got a call about a property in Newton center.  I figured that this would be a great learning opportunity for Mike.  I called my co-mentor Peg Graveline of JEM Property Group and set up a time for them to go view the property.  Mike took all the pictures and got to watch Peg negotiate and sign the contract.  In the Wednesday night mentoring sessions that we do every week, we’ve covered how to put together a package for exit strategies for a property.  This is essential when pulling together funding partners or presenting to investors you may want to wholesale the property to.  We’ve covered the importance of consistent marketing and developing relationships with Realtors.  I introduced them to my favorite account Joe Craft, CPA and in our most recent session introduced them to John Syron of Aurelian Lending to go over the possibility of using their Unsecured Lines of Credit program.  We will be doing a new webinar on this service in May.  Stay tuned.  I also sent them a property in Dorchester that came across my desk this past week.  Not sure if they went to view it, that’s for the next post.  For, now….what have Mike and Jacqui been up to over the past week? mike and jacquiUpdate: Evaluating Potential Rehab Deals Since our last post we have been working with local real estate agents to learn more about the market for single family rehab investments. Last weekend, we went out with Matt Heisler, an investor friendly real estate agent who specializes in the central and metro-west markets.  Matt understands we are looking at properties from an investment point of view and has been a great resource.  With Matt we looked at properties inside the 495 belt, but about 30 minutes away from our target market of Framingham. The first house we saw, the Cat House, was a small 900 sq ft ranch in your average working class neighborhood. We immediately noticed the smell of cat urine and that the house was pretty much a mess. Our hunch is the house is currently rented to tenants and the seller may be motivated due to the extensive deferred maintenance inside and outside of the property. To expand the house, we could potentially add value by finishing the basement and adding a garage. However, we are unsure if the addition of a garage provides a significant enough return on investment to make it worthwhile. Our research suggests you may only get a 1:1 return on the money you invest to build the garage, however you will attract a larger market of potential buyers. Kitchens and bathrooms all need to be gutted and the exterior of the house needs some cleaning up.  House has original hardwoods throughout but the current tenants have let their cat wild and don’t seem to care about cleaning up therefore flooring needs to be replaced.  We are thinking of offering $160k. Estimated rehab costs: $45-60k depending if we add a garage) Potential sale price: $250-275k. House number two, the Old Folks House, seemed much more promising and we will admit, it was a breath of fresh air walking in. No cat urine! This was a much larger ranch in a quiet hill top neighborhood.  Real estate owned property that has been on and off the market for the last year. Needs new kitchen, paint and possibly updating the basement.  The basement was finished probably 25-30 years ago and although it is large and bright with a full bath, it is outdated. We would want to refinish the basement, but are concerned about return on investment. The house is located in a beautiful neighborhood, however across the street is a large Victorian that has been converted to a nursing home.  Not really an eyesore, but definitely out of place in a neighborhood of single family homes.  Is this a deal breaker for buyers? To be on the safe side of the budget we are reducing the estimated after repair value by 5-10%.  We are thinking of offering: $200k. Estimated rehab costs: $50k. Potential sale price: $315k. As we move forward we are still refining our investment criteria for a rehab property, however we are current looking for: 3-4 bedrooms with the potential for 2 full bathrooms, hopefully a master bath or space to add one in.  If the layout is not ideal, is it easy enough to manipulate? After that we don’t really care what the inside looks like because we will probably be replacing most of it, so the uglier the better. We also look outside and at the curb appeal, is there enough yard? How is the neighborhood? Spy on the neighbors, would you buy a house here?  From a numbers perspective we are targeting a minimum of $30k profit and for houses over $300k we are targeting a profit of at least 10% of the purchase price. Stay tuned to hear about any offers we put in and if accepted, how we were able to finance the deal as new investors.  In the meantime we are sending out our next batch of direct mail letters.  With our last mailing we got one response “Please take me off your mailing list”.  Hey, at least we know the letters were read! If you want to get in touch with us please contact us at jacqui@fitzpropery.com or mike@fitzproperty.com.

Filed Under: Uncategorized Tagged With: 12/31/2012 deadline for gift tax, an advisor you can trust, Boston Area real estate investors, boston area real estate investors association, Boston real estate investors, boston real estate investors association, diary of a newbie real estate investor, flipping properties, flipping properties in boston, real estate around boston, real estate club, real estate mentorship contest, sell your house fast, sell your house now, The meaning of fear, trusted advisor, unsecured loans, www.bostonareia.com

Are you an amateur or a Pro?

April 9, 2014 by bostonareia 1 Comment

Bernadette Trafton, Chief Connector Are you networking your way to success?  We all go to networking meetings, collect business cards, shake hands and network with people.  MOST people go home, put the stack of business cards on a shelf and don’t really do anything with them.  However, what we do afterwards is what truly determines if we are amateurs or pros and ultimately this dictates our success.  On Thursday, April 17th at 5pm, we are doing a special coaching session from 5pm – 5:30 pm for members of Boston AREIA only.  We will cover how you can go from being an amateur who just spends your time going to meetings to a pro.

Learn to: networking pics

  • Develops your connections
  • Provides value
  • Become a person of influence.

Members must RSVP for this coaching session by Tue 4/15 via email at dette101@gmail.com.

See you on April 17th!

Happy Investing,

Bernadette Trafton, Boston AREIA Chief Connector

Filed Under: Uncategorized Tagged With: 12/31/2012 deadline for gift tax, an advisor you can trust, boston, boston area real estate investors association, FLIPPING IN BOSTON, flipping properties, lead geneRation online, learning to flip in bostons, networking for success, Prosper in 2013, real estate mentor contest, real estate mentorship contest, real estate networking, real estate social media, rehab tour, trusted advisor, www.bostonareia.com

Dreams of flipping houses for income?

February 11, 2014 by bostonareia Leave a Comment

Bernadette Trafton, Chief ConnectorDo you have dreams of flipping houses and riding off into the sunset with a bank full of cash?  Many people have that same goal.  Then they start doing the research on what to do and how to do it.  They inundate themselves with education and read everything that everyone has ever written on the subject of flipping houses.  A few, I mean maybe 5 percent actually take action on some of the things they learn.  A few of them are successful, a few of them find themselves in a situation that leaves them over their head.  The ones who don’t take action are paralyzed by the fear of doing something wrong and ending up like the ones that are in over their head.  They’ve got families that are counting on them, they can’t get in over their head.  And, there is so many methods and areas of real estate out there.  What way do they turn?  Who do they listen to?  What is their best tool to get into the game?

Well….every guru out there will tell you to come to your local real estate investors association to network with people who are actually doing things, know the local laws and will be willing to partner with you on deals.  A seasoned investor won’t partner with you on a deal if there is an opportunity to get in too far over their head.  They don’t get emotional about properties.  They don’t do deals just because.  They run the numbers and if the numbers make sense, then they go for it.  So, the gurus are right, groups like Boston AREIA are the best place for you to go to network and meet these investors, get the education and develop the relationships you need to be successful.

Boston AREIA is taking things a step further.  We are running a mentorship contest.  Unlike the gurus programs, there won’t be a charge for this mentorship.  It’s all about on the job training and learning from local experts.  READ ABOUT THE MENTORSHIP CONTEST HERE! 

We also have local real estate expert Peg Graveline and her team at JEM Property Group coming in and doing a 20-30 minute talk on flipping and rehabbing every month.  The team is also very open to partnering with newer investors to make sure they are successful in their endeavors.  Make sure you get to the upcoming meeting on the 20th! 

Yours in success!

Bernadette Trafton, Boston AREIA Chief Connector

 

Filed Under: Uncategorized Tagged With: 12/31/2012 deadline for gift tax, an advisor you can trust, boston, boston area real estate investors association, Boston Commercial Real Estate, commercial real estate, flipping properties, MA Shortsales, real estate mentorship, real estate social media, trusted advisor, www.bostonareia.com

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