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Real Estate in an IRA, Part 2: Managing Assets in a Self-Directed Retirement Plan

August 18, 2014 by Bernadette Trafton Leave a Comment

Last week’s blog discussed setting up a self-directed plan that allows real estate in your IRA. As promised, this week’s topic covers how to properly manage those assets. There are specific rules you must adhere to in order to comply with IRS regulations so your self-directed IRA works for you instead of against you.

Now that you have set up your self-directed IRA, have it properly funded, and are ready to begin looking for property there are several things to keep in mind. While self-directed retirement plans allow many different alternative investment options, there are strict guidelines relevant to prohibited transactions and disqualified persons you must be aware of. Failure to comply could cause your IRA to suffer heavy penalties or even disqualification.

When exploring real estate options, know that your IRA is not allowed to purchase property from you or from another disqualified person. Your IRA is also not allowed to sell property to you or a disqualified person. Disqualified persons include:

  • The IRA holder and his or her spouse
  • The IRA holder’s lineal descendants (children, grandparents, etc.) and their spouses
  • The IRA holders lineal ascendants (parents, grandparents, etc.)
  • Investment advisers, managers and fiduciaries
  • Any corporation, partnership, trust, or estate in which disqualified persons have a 50 percent or greater interest
  • Anyone providing services to the IRA

Another important thing you need to understand is all property your IRA acquires is owned by your IRA and not by you. Any earnings gained, whether through resale or rental income, flow directly into the account. Expenses relative to the property must be paid directly from the IRA. When purchasing real estate in your self-directed IRA, it’s critical to plan for anticipated expenses in advance, so your IRA is prepared to cover them. If you have partnered on a purchase with other parties, your IRA only pays for its percentage of repairs and also must receive only its share of income.

Additionally, you are unable to use the property for personal purposes. For example, if you own a vacation rental you or other disqualified persons may not vacation there. The real estate was purchased to build wealth for your retirement. Using the property for personal purposes before you hit retirement age would be considered a current benefit and your IRA will be penalized, if not disqualified.

You are personally not allowed to perform repairs or maintenance on real estate in your IRA. Doing so constitutes “sweat-equity” and is considered a contribution to your account. The IRS only permits contributions to an IRA to be made in cash—and sweat equity cannot be measured in value. Repairs and maintenance must be performed by a third party—who is not a disqualified person—and paid at current market rates.

On the flip side, you do not have to hire a third party to manage the property in your IRA. The IRA owner is able to manage the property as long as you don’t perform sweat equity or pay for expenses out of your own pocket. Again, all income and expenses flow directly into and out of your self-directed IRA. Rent checks and other income must be written to the IRA and deposited directly into the IRA account. Income or expenses are not allowed to flow through the IRA owner for any reason.

Hopefully it goes without saying that it is crucial you perform due diligence when looking for real estate to acquire in your IRA. You want to find a decent property in a location suited for the purpose you desire. If you want a quick rehab-and-flip, the goal would be that the cost of the property plus the money it costs your IRA to renovate is low enough for your IRA to make a profit at resale. Location is key whether conducting a rehab or acquiring rental property—you want to be as sure as you can there is a market for resale or good potential for acquiring tenants for rentals.

If you have any questions regarding real estate in your IRA, 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, an advisor you can trust, boston, boston area real estate investors association, Boston Commercial Real Estate, Boston Marathon, diary of a newbie real estate investor, free real estate education, ma Real estate, mass foReclosuRes, real estate mentor contest, real estate social media, 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

AND THE WINNER IS!!!

February 21, 2014 by bostonareia Leave a Comment

Bernadette Trafton, Chief ConnectorWe are very excited to announce the winner of our mentorship contest!  Be patient…

We announced the mentorship contest in January, giving folks until Feb 14, yes Valentine’s Day, to submit their entries.  This is the way the next 3-4 weeks went:

Peg texted me, “Did we get any entrants?” 

My response, “We’ve got people who said they are interested, but, no submissions…don’t worry, we aren’t close to the 14th”

We got out first and second submission on Feb 6th.  A few in between the 6th and the 14th and whole bunch of them on the 14th.  In total we had 15 folks apply for the contest!  We expected 6 or 7.  So, it showed us the great amount of interest the group has for these types of opportunities.  The submissions were so good that it took us time to narrow the field down to 6 people.  We emailed each of them and scheduled a telephone interview with all of  them.  Peg and I would get off the phone with a potential mentee and we’d say, “Oh, I really like them and what they had to say…”  When we realized we were saying that about all of them, we decided that we had to do something for all of them.  So, here’s what the folks win, who didn’t actually win:  Every month at 5pm before the regular Boston AREIA Networking begins, we will provide a workshop for all the folks who submitted an entry.  (If you didn’t submit an entry, are a member of Boston AREIA and have interest in attending, please email me at Bernadette@BostonAREIA.com).  The first workshop on March 20th will be to put into action the marketing education that I presented last night.  We will actually pull lists in our target areas and will put together a direct mail marketing campaign, from start to finish…yes, it’s possible to get something like that put together in about 1/2 hour…if you are being guided!  Each month will go the next step…so, first step – FIND A DEAL…

So, after Peg and I talked about what we were going to do for everyone else…we had to decide on a winner.  There was much hemming and hawing, but, the entry, interview and so he knows, the followup email that he sent after the interview sealed the deal for our new Mentee, Mike Fitzpatrick!  Look for some Diary of Newbie real estate investor submission from Mike to track his progress.

Great job to everyone who submitted an entry!  And, a special thanks to Peg Graveline of JEM Property Group for agreeing to “PAY IT FORWARD” with me.   Peg, YOU ROCK!

Yours in success, Bernadette Trafton, Chief Connector, Boston AREIA

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 Commercial Real Estate, Boston real estate investors, Commerical Real Estate in Boston, MA Shortsales, real estate mentor contest, real estate social media, www.bostonareia.com

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