Don’t tell my boss, but yesterday my co-workers and I explored villas in Montenegro, beachside cottages in Belize, and palm-tree-studded estates in Costa Rica -- all for sale at ridiculously low prices and all available for purchase by foreign investors. Of course, our home-buying tour was a virtual one since we were on websites devoted to foreign real estate. We wasted a good 10 minutes of the company’s time looking at exotic locales and breathtaking vistas and wishing we were far, far away from our office cubicles.
The ironic thing is that, while we were dreaming of owning overseas properties, others our age and in similar limited financial circumstances were actually doing something about their dreams. They were buying up foreign real estate – and not with liquid cash, but with funds from their retirement accounts.
Due to our nation’s current housing market woes, increasing numbers of Americans are turning to foreign countries for hot real estate deals. Some countries, such as Argentina, France, Italy, Spain, Panama, and Malaysia, have few or no restrictions on foreigners buying real estate, and some countries even encourage it. While properties in some pockets of the world are certainly exorbitantly priced (think: French Riviera), others, like Malaysia and Uruguay, boast highly affordable real estate in charming and picturesque towns.
Making these real estate purchases even more attractive is the option of using IRA and 401(k) funds to make the buy via a self-directed IRA or real estate IRA. As long as the property is used as a true investment for growing the retirement account, you can direct your money into real estate in the same manner you can direct it into the purchase of stocks, bonds and mutual funds. This is great news, especially for those with slim bank accounts who, over time and hard work, have built a nice chunk of change in their IRAs.
There are some caveats, however, to this kind of transaction. Most notably, as the IRA holder, you can’t reside on your IRA-purchased property, and it can’t be rented out to close relatives. It can, however, be leased to other happy vacationers or locals, or it can be held as a lucrative real estate investment. Then, as soon as you reach retirement age and start taking distributions, you will be able to acquire ownership from your IRA and use the property as you please.
There are numerous advantages to using retirement monies to purchase real estate, whether here or abroad. Besides allowing you to diversify beyond the volatile stock market, these transactions – when properly structured -- allow for multiparty purchasing. This means you don’t have to depend solely on the funds in your own IRA account. If you want to bring investment partners on board, you can legitimately do so within the parameters of self-directed IRAs. Want to pool your limited retirement monies with those of a few close friends or relatives? Go ahead! Someday you could all live or vacation together in your own beachside condo on the coast of Spain.
“U.S. investors are scooping up foreign land and rental properties in excellent locations at equally excellent prices,” says David Nilssen, president and CEO of Guidant Financial Group a leading retirement account facilitator. “Many investors are avoiding the stock market for investment opportunities that allow for more individual control. They’re turning to self-directed 401ks that enable diversification into real estate, as well as numerous other areas like tax liens, hard-money loans, franchise purchases, and so forth.”
Nilssen reports that domestic residential and commercial real estate investments have always been popular with Guidant clients. “But today,” he says, “we’re facilitating accounts for increasing numbers of clients who are securing overseas properties and are delighted with their purchases.”
Because self-directed IRAs require careful structuring, you’ll want to work with a professional account facilitator if/when you set up a self-directed retirement account. And if you intend to purchase foreign real estate, many facilitators could put you in touch with multilingual specialists or property managers who can assist with such transactions.
So do your homework. And if in your research you find yourself at your office desk poking through international realty sites and dreaming of life in colorful locales, have yourself a ball. I won’t tell your boss if you don’t tell mine!
-- SFPetersen
