Before you choose an IRA real estate custodian, there are some things that you should consider. First of all, just because an IRA custodian allows real estate transactions does not mean that they “encourage” it.
I believe I can best explain what I mean with this example.
Suppose you decide to use the account to bid on one of the many foreclosures in your neighborhood. You are able to get the property and with minor repairs, it is ready to go back on the market, at a higher price, of course.
It takes six months to find a buyer, but the sell goes through and the deed is transferred to the new owner’s mortgage company.
There is an IRA real estate custodian that would charge you a total of $341 to complete this transaction.
So, because of the high fees associated with the transaction, it appears that the IRA custodian allows real estate, but doesn’t exactly encourage it. If you want to get the best deal, you need to shop around, just as you would for any other goods or services.
That same IRA custodian allows real estate, but also takes 45% of your earned interest on un-invested cash balances. When you invest in the real estate market, there are nearly always cash balances within the account and it isn’t fair or economically sound to earn less, as you decide what to do with that cash.
If the account owns rental property, there will always be cash coming in and it is wise to maintain a cash balance to pay for repairs, since any fee associated with the property must come from the account.
The best IRA real estate custodian is one that does not charge per-transaction fees or other charges that can really add up over a year’s time.
A reasonable annual fee that is usually based on the value of the account is the best choice.
If your current IRA custodian allows real estate transactions, you might just want to find out what charges your account will incur, since these fees are often hidden in the fine print. And, while you’re thinking about it, find out if they offer educational material or free seminars about investing.
Some custodians publish success stories about what other investors have accomplished and how they did it. There is at least one IRA real estate custodian that allows you to form a Limited Liability Corporation (LLC) within the account, so that the account can hire a management team. That can really simplify the process.
There is one team that specializes in “neighborhood revitalization”.
As a result, they already have buyers lined up and properties available for purchase.
They just need investors that are interested in ‘doubling’ their typical rate of return, without making too much of an effort.
If an IRA custodian allows real estate transactions, they may be familiar with the whole process. If not, you might want to choose a different IRA real estate custodian. It pays to shop around.
Your next step is to seek an IRA custodian with real estate experience. Time is the issue as recent news articles reveal home sales are showing signs of improving.
Real estate will cycle as it always has. Now is the time to begin your profitable adventure.
