Here is my situation in a nutshell.... Married with 2 kids. I am a Firefighter/Paramedic and my wife works for a family business. I am 32 years old and I am wanting to start investing in buy and hold real estate.
My question is: I have about 45k in an IRA that we have saved through the years of marriage. Is it a good idea to use this money to get started in real estate investing or is the better route trying to find a partnership? Thanks in advance.
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There are many ways to invest in real estate. If you pull out your IRA now you will be faced with taxes and penalties, which I don't think is wise in my opinion. You can also convert your IRA into self-directed and invest in real estate out of your IRA. If you do so you personally would not be allowed to do any work on the property nor can you personally benefit from the transaction in any way - only your IRA. Also, if you decide to use leverage - non-recourse financing must be utilized since you are not allowed to provide personal guarantee for your IRA.
@Rhett Dantzler I would not use the money from your IRA. You are going to be hit with taxes and penalties if you pull that money out. Newbies generally dont like this following advice, but I think if someone wants to invest in real estate you just need to save up the money. Getting on a budget where you save is not only gong to help you enter real estate with less risk....but learning how to scrimp and save and manage money is going to help you become a better businessman and investor.
A better route would be to save money outside of retirement. I would cut out all non-essentials, brown bag my lunch, brew my own coffee and eat tuna fish for dinner before I got a partner!
I am being reading a lot on here about self-directed IRA's. That seems like the better option if I am going to us that money for real estate investing.
I understand the point of saving. I am a Dave Ramsey Alumni. =-) I just started reading the book by Brandon Turner. He mentions creative financing and I hear a lot of talk on his podcasts about ways his guest got started in the industry. Many of them took risks to get started and many of them never put any money down. Thats what I am going to learn to do. The topic of the IRA came up in a conversation with me and my wife. She is much more frugal than me then it comes to investments. I tend to be more risky but I also want to be smart about it. From what I have read and heard that many investors do well with partnerships. I understand it adds another variable to the business and probably more headache at times but 50% is better than 0% according to Mr. Turner. Thanks for the advice though...Im going to look into the Self Directed IRA and see what other ideas will work.
Have a plan with whatever you decide. No plan = bad news.
I have always never wanted cash in my hand or account. I push every dime I can into generating assets that will give me monthly income.
Passive income is magic income. I can spend, the income disappears and the next month it reappears.
You might want to go to some RE investor groups that meet in your area. Find some people to network with and see how it goes. When you find somebody who is buying properties and knows what he/she is doing, then you might want to ask them about buying something together. The property can be the only one that you buy together or it could be one of 100, just depends on the relationship.
If you will be using the IRA for flipping real estate, Unrelated Business Income Tax (UBIT) may apply. On the other hand, UBIT will not apply if the real estate is held for long periods of time and not debt financing is used.
Lastly, if you plan to run the real estate investing as a business and thus take a salary, the IRA will not allow for this but the ROBS 401k plan will.
@Rhett Dantzler If you are eligible for a Solo 401k, that is another option that would allow you to use your current IRA money to invest into real estate. The Solo 401k has several advantages over an IRA LLC including tax advantages when using financing.
Do you own your own home?
The self directed IRA is a good start. I buy and hold in my IRA and have been doing it for years. I learned about it in my early 40s and liked it so much I opened up a self-directed IRA company. This method will be building your net worth and not actually adding to your present cash flow. If you don't need the extra cash for living expenses then it's a good move. If you're looking for extra cash today I would say this is not the best method. If you would like to discuss give me call. Good luck!
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