When IRA’s (Individual retirement accounts) were introduced in 1974, they seemed to be the dream shelter for reducing taxable income. The funds were handed over to a custodian who would typically invest in stocks and bonds that would increase the value of the IRA.
Since the average person earning a middle class wage is either wary or unskilled at increasing individual assets through stock market speculations, this custodial service felt like a safety net during the era of a robust economy.
All good things come to an end. Over the last few years, many IRA investors have felt the uncomfortable slump of mutual funds that vanished down the tube and bonds that sat around doing next to nothing.
Motivated by the uncertain market, there is a growing trend among IRA holders to switch from traditional IRA’s to self-directed IRA’s. Typically, IRA custodians place restrictions on what you, the investor, may or may not do with your funds. You may not invest in collectibles, such as antique furniture, stamps or artwork. You may not invest in life insurance.
Many traditional IRA custodians do not permit real estate investments unless it is held indirectly, such as in a real estate investment trust. The range of investments are much broader with a self-directed IRA.
The account owner must still go through a custodian or trustee, who ensures that all transactions are within the requirements of the IRS, but the holder takes charge of how the money is to be invested. Typical uses of self-directed IRA’s include mortgages, franchises, partnerships, private equity, and real estate.
Real estate has become a hot topic. Under the terms, real estate may include both U.S. and international residential and commercial properties, raw land, farm land, property renovation, development, and rental income.
Even if you haven’t reached retirement age yet, you may use your IRA funds to purchase and rent out your valuable investment, with the proceeds rolling back to your IRA account, tax free.
Foreign investment is really the best way to go. The financial advice of the U.S. real estate market today is to invest in rental units. As America falls deeper into debt, even rental units face a dubious future with increasing restrictions, code regulations, and insurance demands dwindling away at the profit income.
You could find yourself the proprietor of a trailer park, or an apartment complex, with clients that come and go, with no more regard for your property than for a second-hand car, and your retirement years spent straightening out quarrels, repairing faulty plumbing, and cleaning up the refuse others have left behind. Lawsuits are an endless headache for rental unit owners and property depreciation is always a dangerous possibility.
While the country that once invited in the poor and tired masses becomes the poor and tired masses, Latin America is on the fast track to growth. The IRA funds that you invested in a modest home to rent out until the day you no longer had to punch a clock could purchase twice the grace and beauty, along with fewer restrictions and more opportunities to enjoy the life of adventure you dreamed about having upon retiring.
You can buy your dream property on the Caribbean outright if you have enough funds in your self-directed IRA LLC bank account. Purchasing outright means paying all the closing costs, along with any taxes, fees or insurance required to settle the deal.
If you don’t have enough, you can partnership with a family member, friend or a colleague, with the percentage paid according to the agreement of property ownership by your shared agreement.
Your options for what you do with your foreign investment are liberal. You can use undeveloped land to create a tourist attraction. You can make improvements on a developed piece and rent it, or simply decide this is where you wish to have your home, and rent it out until retirement.
Your home is no longer your castle north of the border. Even if you own your property outright, you are restricted by regulations and zoning codes that tell you what you can and cannot have, and in some cases, even the color you paint your house.
The cost of living is so high, a few thousand dollars a month still puts many in the low income bracket. By investing in foreign property with your self-directed IRA, you can expect a higher standard of living and live free, with fewer restrictions on what you can do with your new home.
The Panama 3 Count, where we bring you 3 Panama stories that you shouldn’t miss. Photo Credit: Conde Nast Traveler 1: Bocas del Toro, Panama:
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