These are the primary ways of increasing buying power when putting real estate into a retirement account:
- Mortgage financing – This has to be in the form of a non-recourse loan, which is typically limited to about 70% LTV. This can double or sometimes triple your buying power, allowing you to have three assets instead of one.
- Buy cheaper assets – Instead of buying property in San Francisco, consider buying property in the midwest – it will probably provide better cash flow and will be less susceptible to severe price corrections. This may also involve a mental shift away from aiming solely for appreciation. This increases your buying power in the sense that you can afford to hold more lower priced properties.
- Partner with others – This is by far the most powerful way to increase buying power. There’s no limit to how many partners you can have and how much they can co-invest.
Partnering with others is essential for the self directed IRA/401k investor who has less than $1,000,000 in his account. Here’s where it gets tricky:
When investing into a venture, the investment can often be a security as interpreted by the SEC. This brings in a whole new set of rules and complexities. My next post will be about how to get rid of the complexities and eliminate the security.