Create IRA Wealth with Real Estate IRA Notes
By Joshua Geary
If you own a traditional IRA, you may be chafing under all the restrictions imposed upon what you can and cannot invest in. Switch to a self-directed IRA, and you completely change the situation and create a retirement account with virtually limitless investment opportunities.
Self-directed IRAs Increase your Investment Opportunities
Almost any type of investment is possible with a self-directed IRA. There are almost no restrictions, and in fact the only thing you cant do is use your IRA to purchase collectable items such as coins, or make investments that directly profit you or your descendants. Most of the inherent advantages of IRAs relate to the tax laws that govern these accounts.
- Buy and sell real estate notes without being subject to Capital Gains Tax
-IRA profits are tax-deferred until you reach distributions age (59 1/2)
- Earn interest on every dollar earned by your self-directed IRA the tax-deferred status of an IRA means all profits stay in the account, untaxed until they are withdrawn.
Its even possible to create an IRA trust and appoint the trust as a beneficiary of your IRA. This allows you to leave tax-free money to your spouse or to children, and is particularly helpful if one of your beneficiaries is a minor. Creating a trust is also a good way of ensuring there will be enough money to pay estate taxes.
What about a Roth IRA?
In essence Roth IRAs are very similar to self-directed IRAsthey can be used to make the same types of investments and they are subject to similar restrictions. However, slightly different tax types are involved which make Roth IRAs an excellent alternative. As with self-directed IRAs, income earned by a Roth IRA is tax-deferred; in addition, all withdrawals made from the account are tax-free after the age of distributions is reached. Roth IRAs do not have a minimum distribution requirement, so the owner of such as account can withdraw as much or as little money as they like after the age of 59 1/2. The only drawback with a Roth IRA is that contributions are not tax-deductible.
Generate Passive Income with Real Estate Notes
A real estate note represents the financial agreement made between the lender and the borrower of mortgage money, and includes information relevant to the terms and conditions of the contract. These notes are often bought and sold on the secondary mortgage market. Notes are an excellent source of passive income (income that requires no effort to maintain once the investment is made), and for this reason private investors will often lend money to real estate buyers, in effect creating their own notes. Real estate notes are a source of long-term passive income, and this is one of the main reasons why they are an ideal investment for IRAs. After the note is created or bought by the account, payments are made directly to the account, where they remain untaxed and earning interest, potentially for decades. Real estate notes are an ideal investment for another reason. The property market constantly changes, and property prices increase and decrease accordingly. Notes, on the other hand, do not change their face value according to the way the property market moves, so they are a lower-risk investment.
Who can buy Real Estate Notes?
Yesyou don't need to be a member of a financial institution to buy notes. With the potential to buy real estate notes at a discount of up to 30%, there is plenty of profit to be made. You can even create notes if you have the funds to do so. For people who need to borrow money for a real estate purchase but would prefer not to borrow from a bank or other financial institution, working with a private investor is the only option, and these types of loans can be particularly beneficial for the investor. Privately-funded mortgages carry much higher interest rates than those created by financial institutions, because to a private investor, the risk is greater.
About the author
Joshua Geary is the developer of Asset Exchange Strategies, LLC, the firm which helps those nearing retirement learn how to invest in real estate notes in their IRA. Visit his website for the latest tax deferred real estate IRA strategies. from http://www.FreeArticlesAndContent.com
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