Investing pensions in real estate abroad

by | Mar 27, 2002 | Archives

Here is an exciting way to diversify pensions out of your local currency into high growth real estate.

Dear International Friend,

I am conducting an International Business Made EZ course this weekend and eClub advisor Larry Grossman provides us with two valuable messages on investing abroad. This first message shows how you can invest in high growth real estate through your pension or IRA.

“How To Invest in Real Estate Through Pensions”

“Contrary to what many investors have been told by their brokers and bankers, you can own real estate in your IRA, and possibly the most exciting news of all is the fact you can own non-US real estate as well as domestic.

Over the years, advisors have wrongly convinced many people they cannot own real estate, as well as a number of other alternative investments, inside of their IRA and Retirement Plans. Nothing could be further from the truth. In actuality, the IRS allows a great deal of flexibility when it comes to investing the assets of your retirement account. The problem is many investors do not have a “self directed” IRA or they work with a custodian who imposes their own investment restrictions. Most of these restrictions have nothing to do with the actual Code governing retirement accounts but are instead employed to make life easier for the custodian.

Actually, the rules governing the ownership of real estate are very simple.

What can you own

	1. Raw Land	2. Condos	3. Office Buildings	4. Single Family Homes	5. Multi-Family Homes	6. Apartment Buildings	7. Improved Land

In fact, there is virtually no type of real estate you cannot own beyond the general rules governing “Prohibited Transactions”.

Prohibited Transactions and Self Dealing

The IRS has some rather simple and straightforward rules that define what you cannot do. A simple rule of thumb is your retirement plan is meant to benefit you at retirement and not before. You may not, directly or indirectly, deal with yourself or a disqualified person. The term, “deal with yourself” means you cannot lend money, extend credit, furnish goods, services or facilities to yourself or a disqualified person.

Let me put it in plain English instead of the typical legalese of the code. You can invest in any type of real estate you want as long as it is an investment and not for your own use currently.

Currently is an important part of this puzzle. Let's assume you have found your dream retirement home or the piece of property you would like to build it on. As I have said earlier, it can be in the US or outside of the US. The solution is simple. You purchase the property using the funds in your ” Self Directed Plan”. Upon your retirement, you would like to own the property personally (outside your IRA/Retirement Plan) and use it for your own benefit. At that time you take a distribution from your plan by taking possession of the property. You would be taxed upon whatever the value is when you take possession. Of course you have the option to sell the property outright at anytime.

Other Requirements

  • You may not purchase the property from yourself
  • It may not be purchased from family members, except for siblings.
  • Neither you, your business nor family members may lease or live in any investment property owned by your plan
  • Only Retirement Funds may be used as the down payment or good faith deposit
  • The title must be in the name of the Retirement Account
  • You may have a fractional ownership in a property

“Disqualified Person(s)”

An owner, direct or indirect of 50% or greater of:

  • The capital interest of a partnership.
  • The total value of all shares of stock of a corporation including all classes.
  • The combined voting power of all classes eligible to vote.

A member of the family, again siblings are allowed

These are the basic definitions of disqualified individual but I urge you to contact our office, or view the complete IRS definition for a full description of this term.

The good news is you can find the dream property you have always wanted, and purchase all or part of it with your retirement assets and eventually take ownership of it. This can all be done legally and compliantly.

For additional information on this topic please contact our office.

Larry C. Grossman

International living will be conducting a real estate tour in Ecuador this July. For more details write to me at Larry Grossman will join me to speak about this subject at Jyske bank's upcoming international investment seminar.

Until next message, good global investing!