Self Directed IRA

Here is an interesting article we found in Professional Builder Magazine written by Bill Lurz, Senior Editor.
Enjoy!

Finance Solutions to the Rescue.
Desperate times calls for creative measures when it comes to financing home building projects.

Builders desperate for new sources of capital are turning to new kinds of private investment sources. Pensco Trus Co., chartered in New Hampshire and headquatered in San Fransisco, is one company making this opportunity work for builders.
Pensco administers more then $3.3 billion in retirement assets. “We can’t directley promote any particular investment,” says CEO Tom Anderson, “but we link to Web sites where builders can post information about projects. Two new portals have just launched within the last 60 days: www.nationalalt.com and www.iravestor,org.”
“Our clients can invest in anything except life insurance, collectibles and the stock of subchapter S companies.” Anderson says. “Everything elese is free game, including real-estate. They can extend loans to builders or do join ventures to share in teh proficts from a project.”

MetLife Joins Mortgage Lending
Early last fall. MetLife acquired First Horizon’s mortgage business and converted it into MEtLfie Home Loans, now headquatrted in Dallas. “We’re part of MetLife Bank, whick is out of Bridgewater, N.J.,” says Senior Vice President Dan Schmidt, who runs the national builder division. That division is already creating new programs, such as rate buy-downs, to help builders sell houses.
“We just rolled out a new offering of jumbo loans,”Schmidt says. “MetLife is in a great position because there’s nothing in its portfolio that’s toxi –no sub prime mortgages or construction loans on failed projects.
Check out www.metlifehomeloans.com

Here is a great article by Robert Mathers, CPA, PFS and Edward Coyle. You can see the original here
http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/Wealth/AlternativeInvestments.jsp

Net-leased real estate getting closer looks.

December 18, 2008
by Robert Mathers, CPA, PFS and Edward Coyle

As more and more investors become frustrated with seeing their stock and bond portfolio values plummet and suffer the daily angst of triple digit swings on Wall Street, there is a renewed interest in conservative Alternative Investments. Alternative investments, generally speaking, are investments that are considered outside of the traditional asset classes of stocks, bonds and cash. Examples of alternative investments include real estate, commodities, options and financial derivatives. Alternative investments are often used by hedge funds. One of the old tried-and-true alternatives is bricks and mortar, i.e. real estate. Of the entire spectrum of real estate investments available for purchase there is a property type that has been overlooked by most high-net-worth (HNW) individuals — Net Leased properties.

Net-Leased Real Estate

What is net-leased real estate? These are individual properties that are leased, for the most part, by credit tenants on long-term leases of 10 years to 25 years. The term “net leased” means that the tenant is responsible for all operating expenses — real estate taxes, building insurance, utilities and building and ground maintenance. In other words, the investor has little, if any, management responsibilities, always problematic for an individual without the time or inclination to deal with tenants or maintenance issues.

For whom is leased rental real estate suitable? Many alternative investment classes are suitable for ordinary investors. However, due to illiquidity, high risk or other factors many alternative investments are reserved only for “Qualified Purchasers”, or those with at least $5M to invest. Other investments may be reserved only for “Accredited Investors,” or those with $1M net-worth or income greater than $200,000.

Net leased real estate may be a sensible way of diversifying an investment portfolio and can not only minimize exposure to risk but is also a strategy to generate constant, stable and predictable monthly/annual income with added tax benefits potentially derived from depreciation and interest expense deductions. Note that the investors must contact his/her tax advisor for the determination of whether the passive activity loss rules may apply.

Types of Net Leases

Not all net leases are the same so here is a quick tutorial. Absolute and Triple Net are terms that refer to the tenant paying all costs of the lease including the building structure, roof and parking lot replacement. This is in addition to taxes, insurance and common area maintenance (CAM). Double Net has the owner/landlord ultimately responsible for the roof, structure and parking lot replacement. The term net lease can have varying meanings and a close reading of the lease will determine who is responsible for what.

Investment real estate values are expressed in terms of Capitalization Rates commonly referred to as “Cap Rates”. By definition, a Capitalization Rate is “any divisor (usually expressed as a percentage) used to convert anticipated economic benefits of a single period into value.” Many times, this divisor is computed by accumulating differentials of risk associated with the stream of economic benefits being analyzed. Generally speaking, with respect to the economic benefit stream of a real estate investment, a pretax cap rate is the Net Operating Income (NOI, net income less all expenses before debt service), divided by the purchase price. Or conversely, the NOI divided by the cap rate will be the purchase or selling price. Cap rates, associated with a real estate investment are a measure of several determining factors:

a. the credit rating of the tenant;

b terms of the lease such as triple-, double- or single-net, length of the lease tenure, increases in rent during initial term;

c. cost of financing;

d. location;

e. age of property;

f. condition of property upon purchase; and

g. long-term viability of location and building.

A property with strong measures of the above will trade (sell) for a low relative cap rate reflecting the strength of the overall investment, the higher the cap rate the greater the risk.

The good news for anyone looking to purchase a net lease property at this time is that cap rates are rising making it more affordable for those looking to make a purchase in the near future. Re-pricing is happening across the board as lenders tighten equity requirements (30% is not unusual) meaning there are fewer qualified buyers for properties thus more properties available. For example, a brand new Walgreen’s location that was selling for a six-percent cap nine months to 12 months ago can now be bought for a 6.85 percent to 7.15 percent cap. The higher the cap rate, the lower the valuation.

Conclusion

There are dozens of net-leased properties available at any one time and most are brand new construction with fresh long-term leases. They are available all over the U.S. A qualified, seasoned commercial real estate professional who will represent a buyer’s interest should be consulted when searching for a property that meets an investor’s goals and needs. There have been many millionaires made in real estate. If suitable for the investor, the asset class can add stability and income in a volatile market.

Higher ROI on your IRA Investment

Cranford, NJ, USA 1/12/2009 09:01 PM GMT (TransWorldNews)

Investors often find themselves frustrated with conventional investment options that are available to use, because in today’s uncertain world these conventional investment options have many limitations to them. The stock market has become volatile, and is now viewed as a nightmare for anyone who had invested in bonds and stocks. The current environment of the economy has begun to terrify investors, keeping them from investing their good money because they feel it will be put at risk. This is especially true because the losses in 2008 easily ranged from 30 percent to 50 percent from the previous face value.

Many financial advisors and individual investors once believed strongly in the stock market’s potential, but now they are being forced to look for other investment options in order to give heir portfolios some recovery time. One of the increasingly popular investment options is self directed IRA real estate investments for this purpose, and it is growing increasingly popular by the day.

Unfortunately, however, there are not many people who are aware of these types of investments. One of the contributing factors to this lack of knowledge is that people are not taking the time to explore what alternative investment options exist for them. Instead, they often listen to the advice of their financial advisors, but these advisors make their living on the sale of Wall Street products rather than anything else. Once investors have become educated about self directed IRAs, they will be able to gain a lot more freedom and a greater level of control over their investments.

There is a significant difference that sets self directed IRA and regular IRAs apart, which is that there are fewer restrictions on what investments you can make when you choose the self directed IRA route. When it comes to regular IRAs, the custodian can potentially steer you away from making certain investments in situations where they are not beneficial to the custodian financially.

When you decide to roll your IRA over, then you are going to want to achieve the best possible returns within the threshold of risk tolerance so that you can grow your assets for retirement. It is easier said than done to achieve this, because not everyone has the required level of experience or knowledge when it comes to IRA investment options. This lack of knowledge can require many individuals to deal with the regular IRA investment options and their limitations but there may be a solution at hand for those in these situations. By visiting http://www.selfdirectirainfo.com, you can research a number of options and opportunities for self directed IRA investments that are being sponsored by experienced, long time professionals.

http://www.selfdirectirainfo.com is a website that is rich in resources that you need when considering self directed IRA investments. Forget surfing the internet for hours when you can get all of the information hat you need from a single source, putting you in complete and total control of your decision making process. This site will provide information on self directed IRA investing, providing reliable investment information for opportunities that you can roll your IRA into.

Keeping up to date with the latest IRA regulations is an important part of opting for self directed IRA options. Your investments must be compliant with IRA regulations if you want to avoid illegal maneuvering and confusion regarding your investments. One resource that will give you the data that you need is the free IRA alerts that are provided for your use at http://www.selfdirectirainfo.com.

Here is a great article from BusinessWeek.com
You can read the original article here.

Blaze Your Own IRA Trail
With a “self-directed” account, your funds can seek out unconventional investments

Until nine months ago, Hal Fong had a fairly typical individual retirement account (IRA) with all the usual vehicles: mutual funds, stocks, and bonds. Then he finally got tired of the so-so returns. So using a “self-directed IRA,” he directed 20%, about $125,000, into a private-equity deal, Pan Pacific Bank, a Fremont (Calif.) startup. Fong, a 51-year-old logistics manager at Home Depot (HD ) in Northern California, expects the bank to be bought, merged, or taken public within three years, earning a 30% average annual return for his IRA.

More and more people are putting retirement dollars into everything from startups and real estate to race horses. (Life insurance and collectibles are the only investments prohibited in an IRA.) “For some investors, stocks and bonds don’t make sense, and they’re just more comfortable in other assets,” says Paul Maxwell, chief operations officer of Trust Administration Services, one of the custodial firms that handles the paperwork for such accounts.

Not everyone thinks it’s a good idea. Such strategies can backfire for reasons unrelated to investing, says Ed Slott, an IRA consultant in Rockville Centre, N.Y. “There are a whole set of rules for self-directed IRAs, which require investors to be extremely careful,” he says.

LOOKS FISHY
The biggest risk is “self-dealing,” meaning that you’ve effectively used these tax-deferred funds for current use. Say you take $100,000 from your $1 million IRA to buy property on which you hunt and fish. If the Internal Revenue Service finds out about your personal use of the land, the entire $1 million could be considered distributed, and all the money subject to income tax and withdrawal penalties for account owners younger than 59 1/2. Slott says you shouldn’t even let family members use the property, or any other asset in a self-directed IRA. The IRS may decide that there is a benefit to you.

Creating a self-directed IRA is easy. You can ask a bank’s trust department or sign up with a custodial firm (table). They keep the books, disburse money, and collect profits for the IRA, but they may not give investment advice. Make sure the account holds enough cash to meet fees and expenses. Trust Administration Services, for example, charges $35 to open an account, a $150 yearly record-keeping fee, transaction fees of $5 to $250, and an annual asset-holding fee of $10 to $80. For real estate investments, you may also need annual appraisals.

If you’re opting for a self-directed plan, be prepared to do a lot of homework — or pay someone you trust to do it for you. Dennis Geraghty, a 59-year-old brand consultant in Monroe Township, N.J., spent six months doing research and ultimately invested $250,000 — half of his IRA — with a real estate developer who is building a 14-unit luxury condominium in Brooklyn, N.Y.

Geraghty also took some smart measures to make sure the investment worked well. First, he split off money from his existing IRA and transferred that part into his new self-directed account. “This way, if there are any problems, all the retirement money isn’t at risk,” says Slott. Geraghty also invested alongside outside partners who would have a substantial ownership piece. This is especially important if you’re using a self-directed IRA to start and operate a small business. Geraghty expects his investment will pay off in two years, which is well before he will need the money at age 70 1/2, when IRA owners must start taking distributions. (Some investors use rental income from IRA properties for their distributions.)

By committing half of his IRA, Geraghty is making a big bet. Most advisers would counsel IRA owners to keep such investments to the 10%-to-20% range, as did Hal Fong. After all, you want to make sure your retirement money is there when you need it.

Feb 6 2006
Personal Business