Getting Around Prohibited Transactions August 31, 2009
Posted by Jeff Nabers in : real estate, Self Directed IRA Solo 401k , 16comments
Prohibited transactions is a chief topic when exploring self-directed IRA & Solo 401(k) investing. When a person first discovers that his retirement accounts have been chained to Wall Street brokerages without necessity, his mind starts to imagine the possibilities.
Real Estate? Yes.
Private Businesses? Sure.
Precious Metals? Absolutely.
Getting my hands on my retirement money now? Slow down there.
There are two types of limitations on the average retirement account. One is an unnecessary restriction of investment options to securities products. That can be eliminated through restructuring your accounts and funds. The second limitation is legal and cannot be removed.
Setting up a self-directed IRA or 401(k) is about removing limitations. Once you have it setup outside the nearly monopolistic network of securities dealers, you can invest in almost anything… but you must fully understand the legal limitations.
The general premise behind prohibited transaction rules is that the government wants you to grow your retirement account as big as possible because they plan to tax it later on when you distribute the funds to yourself for spending. Without prohibited transactions rules, anyone in their right mind would (more…)
Is my home an investment? March 18, 2009
Posted by Jeff Nabers in : real estate, Self Directed IRA Solo 401k , add a comment
Recently I received a question from somebody looking into self-directed IRA/401(k) investment for themselves. They said, “I ran this by my financial planner in New York who said to roll over my IRA to put some of its money into my home is illegal.” This statement is technically correct. Putting IRA money into his primary residence would be a prohibited transaction. The disturbing thing about the situation is that these three people (a person, their realtor, and their financial planner) could all be on the same page about something so fundamentally ridiculous.
The misconception
In the past 10 years, many people think “real estate investing” equals “putting money into my home”. Their home can’t be an investment in the first place because they are paying for it rather than having it paid for by a renter.
When somebody wants to help people rationalize buying the stuff they sell, they often call it an “investment”. Bill Clinton started changing the way people thought about government spending (when he was increasing it) by calling it an investment.
An investment or a consumer product?
Selling a primary residence to a home buyer is selling a consumer product. It’s for their use. They can buy what they really need. Or they could get extravagant and buy the Lexus/Mercedes version of a home and spend more. Either way, it’s a consumer product if they are paying for it and using it themselves.
But realtors followed Clinton’s spin move and started calling home buying an investment. This really caught on once Fannie Mae, Freddie Mac, and the Fed all took actions to artificially inflate home prices in order to defer the recession of 2002. Once you could buy this consumer product (the home) and then have it rapidly increase in value (supposedly) and realize this value by selling it or doing a refinance cash out, then the talk about the home being an investment seemed to make sense.
Today, the bubble is over, and the illusion that your home is an investment should be easy to correct. If it was an investment, then somebody else would be paying the mortgage. If somebody else was paying the mortgage, they’d probably live in it instead of you.
It’s not to say that buying a home is a stupid thing to do. That can only be decided on a case-by-case scenario that depends on the buyer and the home in question. Buying a home can be a financially beneficial thing to do in some cases, but it hardly could be truthfully classified as “real estate investing”.
Back to basics: real estate investing means buying properties that produce income. And, yes, real estate investing can be done inside an IRA or 401(k). 
Obama ashamed of Wall Street January 30, 2009
Posted by Jeff Nabers in : Money, Personal Enjoyment, real estate, Self Directed IRA Solo 401k , add a comment$18,400,000,000.00
18.4 billion dollars. According the NY state comptroller, that’s what was paid out in bonuses on Wall Street last year as the American people lost nearly half of their investment portfolios… about the same amount in bonuses that were paid out in the supposed boom of 2004.
Obama is concerned because he thinks Wall Street’s greed may undermine the government’s plan to rally support for trillions more in “bailout” and “stimulus” packages. Read the whole story here.
How to profit from real estate investments in a soft and declining real estate market January 21, 2009
Posted by Jeff Nabers in : real estate, Self Directed IRA Solo 401k , add a comment
Three years ago real estate investing was hot. Today, many people act as if the opportunity has passed. I contend that the opposite is true. In the past, as a mortgage banker focused on originating mortgages for investment properties, I started listening to and learning from my real estate investor clients and noticed two categories of real estate investors: real investors and blind investors.
Real Investors have the following in common:
- Profiting when they buy. Rather than believing an entire market is hot or cold, a real investor knows that the purchase price is what dictates the return on the investment. You can look in any real estate market to see property values and rental rates. Those are things the investor doesn’t control. The investor does control what he is willing to pay for a property, and that’s how a real investor knows what his return on investment will be before buying the property.
- Investing for income. Real investors buy assets because they produce income. What a property is selling for doesn’t even matter if (more…)
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