Is my home an investment? March 18, 2009
Posted by Jeff Nabers in : Self Directed IRA Solo 401k, real estate , 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). 
Recessionproof, bubbleproof real estate investing with a Self-Directed IRA LLC or Solo 401k February 24, 2009
Posted by Jeff Nabers in : Self Directed IRA Solo 401k, real estate , add a comment[youtube=http://www.youtube.com/watch?v=hyJnqiI7GG4]
So the housing market tanked. It caused many people to run away from real estate investing, but the real estate opportunities are growing. I’m not talking about the ability to buy properties for cheaply and sell them for more.
This video examines how investing for income differs from investing for gains. The two objectives carry different risks and different (more…)
How to profit from real estate investments in a soft and declining real estate market – Part 2 February 2, 2009
Posted by Jeff Nabers in : Money, Self Directed IRA Solo 401k, real estate , add a commentThis is the Part 2 of series of posts on this topic. In order for this to make sense, please go back and read Part 1 first.
Real Investors have the following in common:
- Buying single assets. What is happening to an entire market is less important than what is happening to the actual assets that you hold. Real investors are holding a portfolio of single assets that are performing well, oftentimes even while the entire market is doing poorly. This may be difficult to do in the stock market, but it’s much more feasible in real estate.
- Buying real estate now. A few years ago, real investors were frustrated that blind investors were running up the price of real estate. This made it more difficult to buy real estate at a price that allowed for profit. Now that all the blind investors are fleeing from real estate, the remaining real investors are breathing a sigh of relief that they can get back to more profitable deals again.
- Looking at comparable sales and comparable rents to analyze a residential property.
- Seeking properties in any geographic location that (more…)
How to profit from real estate investments in a soft and declining real estate market January 21, 2009
Posted by Jeff Nabers in : Self Directed IRA Solo 401k, real estate , 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…)
Feedburner Subscribe
