Retirement accounts and San Francisco Real Estate
A reader asks:I have quite a bit of money in my retirement accounts and heard from a friend that there is a way to use this to do real estate investing. Do you know anything about this?
Our reply:
We are familiar with a company based out of Oakland called Entrust Administration. They can help you invest in Real Estate using you IRA or 401(k) money. Go to their website and you will see what types of plans they can work with.
One of our clients used his retirement money as a down payment on an out-of-state second home. He was told if he sells, all the capital gains will go back into the plan and not be taxed until the money is taken out at retirement. You can see how this could be used over and over again to defer what would normally be taxable gains. It can be an exceptional wealth building tool.
On the other hand, Fox news contributor, Gail Buckner, cautions readers in her 2002 article to think hard before using retirement money to invest in real estate. She says, "While investing in real estate in and of itself is not prohibited, it does present a lot of problems. If there's not enough money in your IRA to purchase the property outright, then your IRA would have to take out a mortgage -- not you.
"I doubt you will find any lender willing to make a loan to an IRA without your personal guaranty. And your guaranty of the loan to the IRA would be prohibited. Also, you should note that pledging your IRA as collateral for any type of loan is also prohibited." She goes on to give other reasons, but check with the experts to see if new rules overcome her list of objections.
However, Realty Times writer, Phoebe Chogchua, is more positive in a 2006 article. We realize that she is writing for a magazine that promotes the real estate industry so there might be some bias. At the same time, the article is much newer than the one above and probably has more current information.
If you would like more information, Realtor Magazine Online has a really good article explaining this relatively new concept. As always, talk to experts before making any financial decisions based on information found here.
- Mick Orton
posted by SFResidence.com @ 9:01 AM
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