Why do we have retirement accounts?  You know, IRA, Roth IRA, 401k, Keogh, SEP etc.  To save money, tax deferred until retirement.  We contribute to this account, tax deferred, hoping to build wealth toward our future.

But remember, the retirement account is not in itself an investment.  The account is a vehicle that holds many types of investments like stocks, bonds, money market accounts etc.  If your account holds stocks and those stocks prices go up, your account has earned income.  You are not taxed on that earned income -- until you withdraw it at retirement.

So now think about real estate and building wealth.  Considering the lackluster performance of the stock market today, real estate in the right market can be a home run. 

Consider this:  (For the sake of brevity, any reference to IRA will actually mean any retirement account)

If you purchase a 30 year old condo unit for $120,000, spend $30,000 remodeling and updating it and then sell it six months later for $250,000 -- potentially, you could be taxed on $100,000 which could be up to $35,000.  So in the end, you net $65,000 which is still not a bad return on investment. 

This is called a "Flip" and it's all the rage with many investors.  They buy cheap, fix it up and immediately sell it for big profits - but if done smartly, those profits can be bigger!  Keep in mind that if you buy cheap, fix it in a shoddy fashion and then place it back on the market for a considerably higher price than the improvements warrants, this is considered unethical and illegal.  The improvements must merit bringing this property up to it's fullest market potential.

Now consider this: 

If you directed your IRA to purchase the same property, had the IRA fund the remodeling and updating and then directed the IRA to sell it, the gains from the sale stay inside the IRA just like earnings from a smart stock move.  In this scenario, you saved $35,000 in taxes... and I don't care if you're Bill Gates himself, $35,000 is still a lot of money to be handing over to the IRS when you don't really have to. The entire capital gains from the sale is tax deferred along with the rest of the money in your IRA.  If you have a Roth IRA, then it's completely tax-free.

The only disadvantage here is that the money must stay inside the IRA -- but if you're building wealth for your future, this is a smart way to go about making your money even work harder for you.

Now, purchasing property through an IRA isn't for everyone.  It's ideal for properties with tax implications that cannot be resolved through other options available such as the 1031 Exchange. 

Things to note:

• Property held by an IRA can never be used for personal or personal business use, no exceptions! (There is a way around that if... contact me and I'll let you know...)
• Property already owned by you, your spouse, or lineal family members, such as grandparents and children cannot be purchased through the IRA.
• The IRA can act in any way you would -- such as lease out, collect rents, make repairs etc.  But everything must be done under the IRA and never in your own name.
• If you ask most banks if you can do this, they will tell you no.  So many people thing that it can't be done at all.  What they don't tell you is that THEY don't do it.  You will have to find the appropriate self-directed IRA and roll your existing IRA into this one in order to begin.  Search the Internet - there's a lot of information out there just waiting to be utilized!

There is so much more you can do within the framework of IRA funded real estate -- from the surprisingly simple to the downright diabolical.  I'll be happy to share more information on this topic and show you other great examples of how to take advantage of these systems that exist.  All you have to do is ask!  To ask, contact me!

Real Estate Investing Course