Eric: Hi, my name is Eric Odum. I’m a Principal Broker for Florida Investment Real Estate in Tampa, Florida. And we’re going to complete the second section of our interview with Scott Maurer, from Advanta IRA. I appreciate again, once again you joining us today, Scott.
Scott: Sure, anytime.
Eric: So, let’s talk about the operations of real estate in the IRA? We talked in the first section about being able to hold an investment property inside an IRA. Let’s talk about some of the operational aspects of how this works.
Scott: Sure, Eric. A lot of people get confused and I think it’s a much more of a complicated process than it is. It’s a matter of establishing an IRA account with us here at Advanta. And, simply, then, doing a transfer or a roll-over from an existing IRA that someone might have with another institution. It’s a non- taxable event to move money from one IRA to another. Once the funds are then received here at Advanta, the client instructs us to make a purchase of a real estate using their IRA. We certainly work them through that process of making sure the title on the deed is ultimately on the all the closing documents, etc. and the transaction is handled within the name on the IRA account…. to make sure that it is included as an asset of their IRA account. That’s a way to avoid the taxes for using money from an IRA distribution.
Eric: Ok. And so, let’s talk about the revenue items and expenses. How do you handle that?
Scott: As I have mentioned, we help the individual from the closing, during the closing process…. once transfer is completed and the real estate is held in the IRA, we then process checks, for expenses you have related to the property…. those should be paid out of the IRA account.
Eric: If the air conditioner needs to be repaired, you guys write the checks?
Scott: We write the check and the client sends us the invoice. We just simply then cut a check out to their vendor to have that paid. So, any expense, whether its taxes, insurance or maintenance type issues etc. all get paid out from the IRA account. And, in additional, the rents coming back in ,or the profit on a sale of a piece of property, come back in the IRA tax-deferred.
Eric: Terrific. And, now, we talked about the real estate before we actually we went to the interview …..about how real estate is typically purchased with debt ….but, my understanding is that there’s some restrictions on how you would handle debt in the IRA….like a mortgage… if you want to put a mortgage on the property.
Scott: Yes, Typically most of the closings we see are cash deals. But, it is possible, if you find a lender who’s going to lend money to your IRA, to mortgage the property. The only requirement is that the loan from the lender to your IRA be a non-recourse loan, which essentially means you’re not personally guaranteeing the loan to the lender. The lender lends money to your IRA, and, if the IRA ceases to pay back the loan, the only recourse that the lender has at that point is to foreclose.
Eric: Foreclose on the property?
Scott: Right. So, as long as you can get a non-recourse loan for the IRA, you certainly can incorporate financing, if that is part of the plan.
Eric: Well, obviously when you’re purchasing real estate as an investment vehicle, there could be some cash constraints on how you acquire… but you mentioned a unique strategy… that you could potentially partner with other people and a couple of different investors or IRA could combine to purchase a property.. ..So, you could have a couple of doctors that have a couple of hundred thousand each in their IRA’s… they could pull together several hundred thousand dollars together to purchase their property. Is that accurate?
Scott: It is. It’s a kind of misconception with people …or they think it could not possibly do it. If your IRA doesn’t have enough cash to actually cover a particular closing, you can partner with any number of individuals….Yourself, personally….. with your personal cash or other people’s IRA….other peoples’ personal cash,….and then your IRA just simply owns a portion of the property and shares in the income and expenses, based on your IRA’s portion of ownership of that particular property. So, partnering is certainly is, acceptable.
Eric: Ok. So, to wrap it up a little bit, are there any other relative points that you’d think that somebody needs to consider when doing this type of investment?
Scott: I think the main thing is… just understanding that when you invest in real estate with in an IRA, it does have to be strictly for investment. You cannot use your IRA to buy vacation homes, a principal residence ….anything like that. It has to be strictly for investment that you are going to buy and hold to rent, or buy and do a quick flip and turn,….As long as it’s for investment purposes…. That is really the key thing when you’re buying real estate in an IRA that you have to understand.
Eric: Scott, I just want to wrap up. Go ahead and tell people how they can get in touch with you, if they needed to start one of these?
Scott: Sure! I would encourage everyone to go to our website—www.advantaira.com or you could certainly reach me directly at 727-581-9853 my extension is 1123. I answer the phone all the time. Please contact me directly.
Eric: I appreciate you taking the time to speak with us today.
Scott: You’re very welcome.
Eric: Now obviously, this is a terrific opportunity for those individuals that might have IRA holdings or roll-overs from 401K’s and they’re looking for a place to control their investments…. prefer to take some money out of the stocks…. out of the bond market and own a piece of real estate… and be able to see the cash flow benefits of holding property inside of the IRA… the tax benefits of the tax-deferred structure of the IRA or the roll-over of the IRA, as well. But again, if you have questions I’m Eric Odum, Florida Investment Real Estate. You can reach us at our website www.FLInvestmentRealestate.com .
Call us at 813.514.1070 to learn more.