Thinking of Buying Real Estate With Roth IRA Funds? 4 Tips to Mistake Free Investing

If you are thinking of buying real estate with Roth IRA funds, let me give you a little advice. Choose the right custodian. There are many examples of a roll over IRA buying real estate, successfully, but the fees charged by various custodians can make a big difference.

#1 – Un-invested Cash Balances

Once you begin buying real estate with Roth IRA funds, you will almost always have some cash in the account. In fact, you need to have some cash there, because all of the costs associated with maintaining the property must come from the account.

Don’t think that custodians don’t know this. They take advantage of it. There is one big company that takes away 45% of your earned interest on un-invested cash balances every year. They call it a maintenance fee, but there is no extra maintenance involved. It doesn’t matter what is held within the account, the same type of maintenance is necessary.

#2 – Additional Charges

When it comes to a roll over IRA buying real estate, you’ll have to have a self-directed account. You tell your custodian to write a check for a purchase. Some companies charge for writing checks. They charge for transferring titles and deeds or mortgage notes. They charge a fee every time that you use the account to make a purchase or sell a holding. All of these fees can add up to thousands of dollars in a year’s time.

When speaking of a roll over IRA buying real estate, one of the biggest advantages for investors is the ability to keep more of their profits, due to the tax-free environment of the account. But, if a custodian charges numerous fees, you aren’t keeping as much.

Similarly, one of the biggest advantages to buying real estate with Roth IRA funds is that you will “never” pay taxes on those earnings. Your contributions are taxed as regular income. There are no capital games or income taxes on earnings made within the account. Qualified distributions are never taxed.

#3 – Annual Maintenance Fee and Reasonable Set-up Charge

If you have a roll over IRA buying real estate can only be accomplished if you choose a custodian that offers the option. Those companies that are currently offering “free and easy set-up” do not offer the option. They are stock brokers and they charge large fees for buying and selling stocks.

A reasonable set-up fee is $50. The annual maintenance fee depends on the total value of the account. If you’re like me, you’re shooting for a million dollars or more by buying real estate with Roth IRA funds. Believe me, it’s not an impossible dream.

#4 – Get An Education

If you are inexperienced when it comes to a roll over IRA buying real estate, get some education and information first. There are a small number of companies that offer “hands-off” investment options. That could be the best choice at this time.

As you learn more about buying real estate with Roth IRA funds, you will be able to do more. But, start out slowly, just to be safe.

Smooth Real Estate Transactions: 4 Tips to Consider When Selling or Buying a Commercial Property

No one would invest in a piece of commercial real estate without investigating it’s resale value, income generating potential, building structure, etc. However, there are a couple of things that seem to get overlooked, even by the savviest investors. Following are the four most overlooked items that you should consider when you are selling or buying a commercial property:

Has the building been unoccupied for more than 180 days?

Collier County has an established Land Development Code (LDC) that governs things like a building’s architectural standards, setbacks, landscape and parking requirements. These requirements vary based on the district where the property is located. The LDC is reviewed and updated twice a year and new projects are required to comply with the codes. Existing buildings are usually “grandfathered” in, however, there are certain times that a building is subject to review for compliance with the current land development code.

One reason a building is subject to review is if it is unoccupied for a period of more than 180 consecutive days. To bring newer buildings into compliance with the LDC may be as simple as revamping the landscaping with extra trees or buffer shrubs. However, with older buildings it can be very costly. A local businessman purchased an older building with the intention of using it as a warehouse-showroom. When he tried to get a permit for a renovation, he was informed that he would have to change the front facade of the building to include among other things, a 75% glass storefront. To bring this building into compliance, it would have meant serious structural changes that increased the renovation costs by tens of thousands of dollars. The project proved infeasible and the building was subsequently resold and developed.

Will the occupational license require a change of use for the building?

Another reason that would make the building subject to review for compliance with the land development code would be if there was a “change of use.” Change of use doesn’t necessarily mean a zoning change. It can mean going from a jewelry store to an office supply store, or a retail store to a restaurant. The reason for this review is to make certain that the new use is in compliance with the permitted uses of the specific zoning area. This review also ensures that there is adequate infrastructure (ie parking) to support the new use.

Will the building need alterations to the fire alarm or sprinkler system?

Another overlooked item is the fire safety system, which includes the fire alarm and fire sprinklers. By adding sprinklers or changing out a fire panel, you open the whole fire safety system up for review and it will have to be brought up to current code. Depending on the age of the building, this can include relocating the fire alarms on the wall; adding fire sprinkler heads; or replacing an entire control panel, which can add thousands of dollars to a project. If you are in doubt, get a consultation with a qualified general contractor or architect during your due diligence period.

Have you allotted enough TIME for planning and permitting?

Permitting is frequently the place where owners don’t allot enough time. According to the City of Naples Building Division, it typically takes three-four weeks for a permit application to be reviewed and a permit issued. However, if your permit application is rejected it can take another two-four weeks after your plans have been revised by the architect. According to the Collier County Building Department, it typically takes six weeks for a permit application to be reviewed and permitted. Depending on the complexity of the project and allowing for a couple of rejections, it is more realistic to plan on three to twelve months for a permit to be issued. A renovation might be three months and a building under 10,000sft might take six-nine months. Unfortunately, there are NO short cuts in getting through the permitting process.

With proper planning, your commercial real estate transaction can go smoothly and provide you with a profitable investment. If you have any questions about the process, it would be wise to consult with a reputable commercial general contractor and an architect.

Top Ten Tips when Buying Real Estate!

In today’s financial climate, real estate continues to be a strong investment in many areas. Educated buyers will always make the most out of the real estate market. These top ten tips to buying real estate will help you enter into your next real estate transaction with confidence.

TIP #1: Hire the right Agent!

Hiring the right Real Estate Agent is invaluable. If you are unfamiliar with the area, the realtor you choose is your link to important information regarding schools, zoning, city and county regulations, neighborhood trends, building and remodeling and rental restrictions, and property values. Every city has different laws governing what can and can’t be done with a property. Sanibel is one of the most beautiful cities in the United States due in part to its strict building codes and city planning. Having experienced many aspects of real estate transactions on a personal level, I understand situations and concerns of my buyers and sellers. I have been an island property owner for many years and have walked through several local real estate transactions myself. From buying and selling lots to building new homes with local builders, to investing in rental income producing properties and utilizing 1031 Tax free exchanges, I don’t just sell island real estate; I invest in it because I believe there is no place in the world like Sanibel and Captiva. Whether you work with me or someone else, finding the right realtor is invaluable.

TIP #2: Utilize 1031 Tax Exchanges and Save Money!

1031 Tax Exchanges are tax free exchanges of investment property. Section 1031 of the Internal Revenue Code is one of the last great tax shelters. If you purchase an investment property of “like kind” within 180 days of the sale of a similar type property, and you are willing to increase the amount of debt or value of the property, your capital gains taxes can be completely deferred. Having just completed a Reverse 1031 tax exchange myself, I believe in using this powerful tax shelter. Feel free to contact me if you are considering using a current Sanibel, Captiva, or Ft. Myers property in a 1031 Tax Exchange, or want to purchase an investment property that might qualify in the future for a 1031 Tax Exchange. A Reverse 1031 Tax Exchange is the same exchange concept as a 1031 Tax Exchange except you have purchased your replacement “like kind” investment property first, before selling the property to be exchanged. Learn more about 1031 Tax Exchanges, and how to use them to your financial advantage. Keep in mind that a neutral party must have act a Qualified Intermediary. Real Estate may also be bought and sold through your self directed retirement account. Whether you utilize a traditional IRA, Roth IRA, SEP, or company plans such as 401 (k) plans, Keogh, or profit sharing plans, investigate your options.

TIP #3: Pre-qualify for Financing!

Pre-qualifying for a loan may not seem that important until you find your perfect paradise property at the same time as another buyer. When a property is priced to sell, it will usually attract more than one buyer. Once a seller receives an offer, the two most important things they consider are …the price, and the contingencies. For some sellers, a contract contingent on the buyer obtaining financing makes them uncomfortable with the offer. Eliminate any doubt in the mind of a seller, by pre-qualifying for the amount you may spend on the purchase of any property. This is especially important if your dream property suddenly has a price reduction. When this occurs other buyers might come into the picture, that didn’t look at that property before it went “On Sale”! Often times a seller will take a financially solid contract over a higher offer. Be ready to put a deal together!

TIP #4: Location, Location, Location!

“Location, location, location”, while overused as a real estate phrase, is still and always should be a huge consideration to you as the buyer! If something about the location of a property bothers you, be aware that the same location drawback will bother any buyer you hope to attract when and if you need to resell the property! It’s important to ask a lot of questions, but often times it is difficult to know the right questions to ask if you are unfamiliar with the community. This is why it is so valuable to choose and hire the right real estate agent to represent your interests when buying a property.

TIP #5: Get a Home Inspection!

Obtaining an inspection report performed by a licensed professional building inspector of your choice, can protect you from many defects that are hidden from view. Why gamble with such a large financial investment? Let a professional building inspector point out areas to be fixed or replaced that aren’t obvious. A good inspector will give you a lengthy report covering all systems in the home from electrical, to plumbing, to roof conditions, and structural concerns. Once you receive a report you may begin negotiations again concerning repairs. Often a seller will agree to make necessary repairs up to a specified financial amount. When a seller lists their property “as is” they are letting you know that they are not willing to fix or replace any part of the property. If you are interested in an “as is” property and aren’t going to level the structure and build new, it is still in your best interest to obtain an inspection report. Don’t rely on the building inspector to look for termites and other harmful pest problems. Although an inspector will see pest damage, it is best to have a separate termite inspection conducted by a licensed company that understands pests and can eliminate them.

TIP #6: Obtain a Survey and Title Insurance!

Surveys will show easements, encroachments, and boundary lines of a property. By surveying a home in an established neighborhood you are assured that the property boundary lines have been maintained. As homeowners add on the their properties over time with fences, sheds, docks, garages, and other structures, boundary lines can be crossed placing part of their structure on your property, or vice versa. Surveying vacant land is also important for same reasons as a home, plus a survey will help determine the size home, or amount of coverage the lot will allow.

Title Insurance will protect your investment from another party claiming ownership interest in your property. Title searches will uncover liens placed on a property by vendors, or mistakes in past transfers of the title. The last thing you want to discover when you’re in the back stretch of a transaction is that there are encumbrances on the property such as tax liens, undisclosed owners, easements, or leases. Should a claim arise after the purchase of a property, the title insurance company is there to protect your ownership interest in that property.

TIP #7: Be Realistic!

“Wants” and “Needs” are very different when is comes to real estate features. If every home you see has the upgrades you “want” but exceeds the price range that you “need”…. be realistic. Who wouldn’t love a large, oceanfront, professionally decorated home or condominium, with all the bells and whistles? Looking at properties that exceed your price range is always fun, but it can be extremely frustrating and upsetting. Be realistic by looking at listings in the price range you “need”, keeping an eye out for that special property that has the potential to evolve into the dream home you “want”. Always look beyond the furnishings, wallpaper, and floor coverings to the architecture of the home; it is then that you will find properties with potential.

TIP #8: Use Contract Contingencies Wisely!

Contingencies in a contract for the purchase of a property are designed to protect you, the buyer! This may seem silly to mention but it’s important to remember that you need to work with the seller to come to an agreed upon contract. Valid contingencies to an offer are expected by the seller. Common contingencies include building inspections, termite and pest inspections, financing, and surveys. Many deals fall apart over small details, and easy to fix issues. Remember that sellers are emotional about their property. If you can see that major repairs or replacements need to be made due to neglect or age, make allowances for this in your offering price. The old adage “Everything is negotiable” still holds true, unless you upset the seller so much that they refuse to work with you. Try to avoid listing cosmetic changes you would like the seller to make as contingencies. Cosmetic changes are subjective, be objective when writing a contract.

TIP #9: Understand Regional Health and Safety Issues!

An informed realtor will help you understand other health and safety issues that should be considered when purchasing a property. Safety and Health topics can include EIFS (Synthetic Stucco), indoor air quality, mold, radon, and lead paint. Many of these require the seller to sign a disclosure statement, while others may not apply due to the age, type of construction, or location of the property being purchased.

TIP #10: Ask for Information!

Don’t be shy. When you have hired a realtor to work for you, ask them for information. Do you want to look at all the properties in your price range, with the features you need, or just the houses a realtor wants you to see? You deserve all the information you need to make an educated decision. Can you imagine buying the home that you felt was good for your family, only to find that you never received information on a similar property that is perfect for all your needs? I provide many services to insure my buyers always have information at their fingertips.