You Can Invest in Land with a Self Directed Retirement Account
Feb 19, 2009 
3 Comments
You can invest in Land, improved or unimproved with a “Self Directed Retirement Plans” since the IRS has allowed them. No one wants to talk about it. “They”, the investment firms do not make money on a Land transaction because “they” are not licensed real estate agents. Only licensed real estate companies can take commissions and are not allowed to pay referrals except to other active real estate firms. The traditional investment community has had control of over 97% percent of the retirement accounts and they have been making a great living off your hard earned money.
Your stock broker or financial advisor will not advise you how to take money away from their pockets and invest in real estate through your IRA, or 401K plan either. The financial magazines run large ads for brokerage firms and mutual funds T.V. and radio investment shows are supported by the same Wall Street advertising dollars…your money. I would be curious to see how many investment magazines will publish this article or if any investment shows will address this topic.
Stated on the IRS website “…..because of “administrative burdens”, many IRA trustees do not allow IRA owners to invest IRA funds in Real Estate. IRA law does not prohibit investing in Real Estate but trustees are not required to offer Real Estate as an option.” No commission for real estate sales may have a say here described as “administrative burdens”.
An Individual Retirement Account is a personal savings plan that allows you to set aside funds for your retirement. Investments made within these plans grow in either a tax-deferred or tax-free environment.
The IRS allows your IRA to earn tax free or tax deferred income with NO limitations on how much you receive—you can earn thousands of dollars with no tax consequences. A “Self-directed IRA” will allow you to choose your own investment strategies to earn significantly more for your retirement.
The term ‘self-directed’ does not actually have any legal connotation. It does not imply a different type of IRA, or a separate set of IRS rules. ‘Self-directed’ is simply an accepted industry term indicating that the IRA custodian is allowing the IRA owner greater control over their investment decisions. When an IRA account is self-directed, the IRA owner makes all of their investment decisions and instructs the custodian to act. You must have a custodian as a third party administrator.
Be careful who you choose as your custodian. Most of these “professionals” are part of the same old 97% controlling crowd previously mentioned. Our recommendation is that you find one that charges an administration fee and believes in Land Investments.
Traditional IRAs, SEP IRAs, Roth IRAs, 401(k)s, 403(b)s, Coverdell Education Savings (ESA) a.k.a. Educational IRAs, Qualified Annuities, Profit Sharing Plans, Money Purchase Plans, Government Eligible Deferred Compensation Plans, Keoghs are qualified plans that can be converted into “Self-directed Retirement Plans”. For more detailed information visit the Internal Revenue Service’s website. Also see Publication 590. On pages 40-41 you will see what investments are not allowed. Land is not included and therefore qualifies as does other types of real estate investments.
Our recommendation is to Stay away from investing your IRA money into an S corporation. S corporations only allow individuals (not entities) and certain permitted trusts to be investors. So if your IRA (an entity) is the investor, the S Corp would lose its status and its tax rate would change to a potentially less favorable one. Roth accounts can be used but take time to accumulate larger funds portfolios.
When purchasing Land with funds coming from an IRA, remember that the IRA itself must purchase the Land and hold the grant deed. All property taxes for that Land must also be paid from the IRA. The self-directed IRA should be opened first with cash or funds rolled over from other IRAs, 401ks, retirement plans, and then the Land should be purchased. Large tax penalties can occur if these transactions are not done properly. Proper care in deciding when to sell or lease the Land is also important. Land, especially pre-developed Land, is a long-term investment and often needs to be held for a minimum of five to seven years to produce the highest returns.
You can leverage a Land purchase with as little at 15% down and amortize 20 years with Farm Credit. They are located throughout the United Sates with different names. In the Land Brokerage business they are called “The Land Bank”. Farm Credit has had the most consistent programs for Land investors. Because of your increased buying power when you use leverage, the profits you make from the ability to use leverage can greatly outweigh the tax associated.
For more information we also recommend you visit, IRAAA™ is a nonprofit education-oriented alliance of financial planning, real estate, legal, banking, investment, and accounting professionals interested in further developing the niche industry of Self-Directed IRA & 401(k) investing. Their Promise is “IRA Association of America aims to provide affordable, unbiased and comprehensive education on the topic of investing with a Self-Directed IRA or Solo 401(k)”.
Make sure that you Google “Self Directed Retirement Accounts” and other associated words. Do your homework. This article’s sole mission is to stimulate your creative juices and reveal part of this untold story. After all you be in control of your own destiny and have the benefits of being a Land Owner. The greatest freedom there is.
In closing I invite you to review the results that the traditional investment community has had control of over 97% percent of this county’s retirement accounts, and “they” have been making a great living off your money. Look at the mess we are in. Ask yourself why would “they” want to let you know about alternatives that “they” would not be able to charge for?
My Land Investors have not lost a single dime and will not in the future. Land is the oldest and most stable investment there is. Contact a Realtors® Land Institute “Accredited Land Consultant” in your market area at. They will help you evaluate the investment potential and the “Highest and Best Use” for future development and utilization. They are ready to help you find that piece of dirt that will provide for you and your family for years to come as it always has and always will.
Related ArticlesThe articles, posts, comments, opinions and information provided by LandThink.com are for informational and research purposes only and DOES NOT substitute or coincide with the advice of an attorney, accountant, real estate broker or any other licensed real estate professional. LandThink.com strongly advises visitors and readers of this site to seek their own professional guidance and advice related to buying, investing in or selling real estate.
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Here is an excellent article by Andrew Waite of Personal Real Estate Investor that explains the benefits and pitfalls of different options of buying real estate with IRA monies.
http://www.personalrealestateinvestormag.com/uploads/Articles/IRA-Nov_Dec-08-v3.pdf
I guess I would be considered in the authors 3% of Financial Advisors who recommend land as an investment. Iam a Certified Financial Planner who loves the outdoors, owns timber property myself along with stocks and bonds, and also advises clients to invest in land or timber property as part of a diversified portfolio. Contrary to the article I don’t believe that it should not be the only asset class people should have because of the lack of liquidity, especially for people who need a consistent monthly income during their retirement. Investing in Timber Property within Self Directed IRA’s can be beneficial for many reasons the article noted. However the article fails to mention to the outdoor enthusiasts the fact that the property cannot be made for personal usage or for future personal usage. If so this can cause the transaction to be tainted and serious tax ramifications generated. In addition to the author’s asertion that “My Land Investors have not lost a single dime and will not in the future”, is an assumption that past performance is a guarantee of future results, which we all know today is not true. He also suggests that that you can leverage your IRA account by only putting down 15%. This is also false as the payments made toward interest if not made within the IRA would be prohibited contributions to the IRA if the interest paid was beyond normal IRA contribution limits, thus causing more tax penalties. The author, as many of them do has an axe to grind, perhaps its against his own failures in stocks or bonds, or the fact that he maybe in the land or timber business himself. Regardless the facts are that timber property, fixed income, equities, non traded public realestate, managed futures, gold, Treasury Bonds, and CD’s, all represent asset classes that have historical ranges of returns and all should be part of a diversified portfolio. Before 2008 Stocks as definded by the S&P500 have annualized about 10.5% for the last 50 years, compared to timber property at 7.2%. Timber Property has its place in larger portfolios that don’t have the need for a liquidity within the next 10 years, it should be an asset class, but could also could be represented by several publicly traded timber land companies like ST. Joe (JOE) or Plum Creek Timber if you dont’ have the knowledge or money to go by a tract of property yoursely you could consider investing in an EFT or Publicly traded company who stock is trading at 20 year lows.
Our company specializes in land acquisition primarily in Southern California. Although I do agree that land and real estate in general is a great investment it like everything else should only be a portion of your portfolio. I also agree with the article in that ”most” financial planners will steer you away from land investments especially when their commission is eliminated. Marcus seems to be one of the more educated, ethical and savvy financial planners out there and therefore he is not totally adverse to land investment. If purchased properly land can provide extremely large profits with minimal losses. The main issue to remember is the illiquidity of land which investors have to prepare for especially in a down market. Our firm has done quite well with our land investments but that can be attribute to a lot of research and preparation for potential down swings in the market like we see now. I strongly encourage using a portion of your IRA for real estate investment, but definitely not all of it. Again just remember the simplest saying when investing, diversify.