Posts Tagged ‘real estate investing’

Using a Self-Directed IRA to Invest in Real Estate

Thursday, June 14th, 2018

Investing in real estate with any amount of money starting is not only possible, it is one of the best ways to build sustainable wealth over time. Many of the world’s greatest fortunes were built this way, and the financial markets now support many kinds of relatively safe and easily understood vehicles that provide investors with a variety of options.

Real Estate Investment Trusts

This kind of trust provides investors with the benefits of stable long-term real estate investment combined with the benefits of a mutual fund. Shares are relatively liquid, and the company that qualifies as a REIT or Real Estate Investment Trust manages income producing properties for the group that helps finance them.

REITs trade on exchanges in much the same way mutual funds and stocks do. They are often sought out for attractive tax benefits and are popular with investors interested in low risk, stable returns.


While these kinds of investments aren’t as transparent as REITs or more traditional vehicles like mutual funds or stocks, a partnership can be extraordinarily lucrative if the right people are in place. Very often, these groups are made of up a combination of property “finders” and others who bring in financing and set up the deals.

With enough experience, these groups can often take small amounts of capital from several investors and apply the same dynamics to every investment, creating swift returns and then repeating the process from property to property.

Mutual Funds

While it might seem that the traditional markets aren’t a great fit for real estate-minded investors, they are a great fit for a self-directed IRA, mainly because of the potential for reinvesting dividends and interest payments. The great thing about a mutual fund that invests in residential home builders, for example, is that the fund gets its money out early and doesn’t have to wait for the long and sometimes slow road to a sale.

It should be noted that some mutual funds take advantage of real estate investment trusts by either indexing them or by creating portfolios of some of the best performing REITs on the market. Because the market treats them like stocks with higher than average dividends, they have the potential to become popular with fund managers.


There is a reason so many television shows have become popular by featuring do-it-yourself individuals and couples who decide to take a distressed or abandoned property and fix it up until it is worth enough to sell at a profit. Every amateur mechanic has their dream car in mind. It stands to reason every amateur real estate investor believes they can find the dream home.

As a vehicle for retirement investment, this can be a lucrative journey, provided funds are secured by insurance and preferably if there is some easy and inexpensive access to the labor required to take a property from broken-down to a successful sale.

Real estate can be tricky for the inexperienced, but there are few areas of the market with a longer and more successful record of success for both IRA owners and the general investment community.

How to Find, Screen, and Select Quality Tenants

Tuesday, May 29th, 2018

By: Kasia Manolas at Avail

Finding tenants who pay rent on time and take care of your property is the key to making money on your rental. In this article, we’ll provide step-by-step advice to help you find, screen, and select quality tenants.  

Find Tenants

If you have an upcoming vacancy, then you’re likely worried about how to find tenants. Fortunately, there are free, easy tools to help you attract the right tenants. The best way to reach as many tenants as possible is to list your property online:

  • Most tenants search online for their rentals
  • With advanced search options, you’re more likely to be matched with a tenant who wants a property exactly like yours
  • You don’t have to sacrifice your first month’s rent or any fees — it’s completely free to list online

Screen Tenants

Tenants will reach out to you directly from your listing. You should follow up with a quick phone call to ask pre-screening questions:

  • Why are you moving?
  • What is your current living situation?
  • When are you looking to move in?
  • The security deposit is $X. Are you comfortable with that deposit amount?
  • Do you have pets?
  • Do you smoke?
  • Will you have roommates?

If all the answers sound good, the next step is to set up a property showing. We recommend scheduling individual showings with each prospective tenant. This helps you get to know each tenant in more depth and you’re more likely to remember details about them.

Assuming the showing goes well, the next step is to provide your rental application. We recommend requiring online rental applications. It’s easy for your applicants to fill out and you can request the application with all the reports you’ll need, including a:

  • Credit report to see how the tenant has treated creditors and their finances
  • Tenant background check to find out how they treat their neighbors
  • Eviction report to find out how they treated prior landlords

Select The Right Tenants

Once you’ve reviewed your prospective tenants’ applications and reports, the next step is deciding who you’d like to rent to.

Here are a few reasons a landlord should deny a tenant:

  • The tenant’s income isn’t at least 3x the rent price
  • The tenant has too many financial obligations and therefore cannot afford the rent price
  • The tenant has a credit score below 500
  • The tenant smokes or has a pet and this goes against the landlord’s rules
  • The tenant has a violent criminal history
  • The tenant has a prior eviction

If you find a tenant who can afford your rent price, can move in on your availability date, and who matches all of your other criteria, then you’re all set to send an acceptance letter. You can email your tenant to let them know the property is still available and you’d like to rent to them.

It’s helpful to provide some instructions for the tenant:

  1. The next step is signing the lease (be sure to provide a timeline for when you’ll send the lease over and when you expect him or her to sign)
  2. Confirm the move-in date
  3. Mention the agreed upon rent price and any deposits or fees

Next Steps

Congrats, you’ve found the right tenant for your property who can pay rent on time and will take care of your property. The next step is making it official. Similar to listing your property and screening tenants, we recommend signing a lease online which is easy with a tool like Avail. Learn more below.

About Avail

Until now, landlords with fewer than 10 units haven’t had access to online tools designed specifically for them. Avail is an intuitive app that helps you advertise vacant units, request rental applications and credit reports, sign leases, and collect rent — all online. Today, 70,000 landlords use Avail because it’s the only end-to-end platform that helps you scale from beginner to professional with tools, support, and education.

What you Need to Know About REITs Before Diving in

Monday, December 11th, 2017


You may or may not know that REITs (real-estate investment trusts), that invest in all sorts of commercial real estate, have been a favorite of investors for years. So let’s go over why it’s a favorite.

Get used to volatility

REITs can definitely play it hot and cold, and aren’t a set it and forget it type of asset. They require vigilance and a careful eye, which may be a big deterrent for some investors. REITs tend to only move in drastic ways, in either direction, which also mimics how they trend for investors. So expect big ups, and followed by downs, and not a lot of in between.

They’re not for short-term investors

Because of their volatility, REITs are for those who play the long game. Those who plan to let their money and assets work for them. They perform best when given the time. Long periods of time. From 1975 to 2014 REITs had an annualized return of 14.1%, so when it’s compared to performances by the S&P at 12.2%, it’s easy to see their appeal. So give them time to shine.

Buy internationally

Now it’s possible to invest in international REIT funds; some are global; others own only properties outside the U.S. These multinational funds don’t have long return histories, but the experts who follow them believe that combining U.S. and international real estate investments will produce higher returns than the S&P 500 index, along with currency diversification.

Distributions are taxed as income

REITs can be tricky at tax time. By law, REITs must pass 90% of their income through to shareholders, who are liable for taxes on that income without the benefit of a favorable capital-gains tax rate. The distributions are taxed as ordinary income, in other words. That’s not great news for investors in high tax brackets.

However, there’s a good side to this arrangement. REITs’ income is taxed only once, at the shareholder level. This is unlike corporate dividends, which are taxed once at the corporate level and then taxed again to shareholders. Hence the term “double taxation”.

Because of this, REITs are best suited for tax-deferred entities such as IRAs and 401K accounts.

A Real Estate Investment Resource you Haven’t Yet Tapped

Tuesday, October 24th, 2017

Real estate is one of the most popular alternative assets when an investor wants to shy away from the traditional avenues like bonds and stocks. Regardless of its popularity, it’s not necessarily accessible to everyone, namely because the amount needed up front is steep. What more and more retirement savers are discovering is that with the right help and resources, they’re able to use their retirement funds to invest in real estate.

Not all retirement accounts are created equal, a majority of IRAs (individual retirement accounts) are managed by an advisor, and the advisor chooses what your funds are invested in. With a self-directed IRA, you’re the one making the decisions, you’re the one directing your investments, so here’s what you should know about investing with a self-directed IRA.

Tax Benefits

When you open, contribute and use a Traditional self-directed IRA, the income earned off of your investments grow pre-tax. This means that when it comes time to retire, and you take monthly distributions, your retirement income will be taxed as income.
The other option you have is what’s called a Roth IRA, and when you open, contribute and use a Roth self-directed IRA, your earned income is contributed after-tax. When you reach retirement age, your Roth IRA distributions are not taxed.

Which type of account you open is up to you, but the differences are stark. Talking to your tax accountant is the best route for deciding which account is best for you.

Non-Recourse Loans

As a real estate investor, you can easily leverage your IRA by using a percentage of the funds in your IRA to purchase your chosen property and use a non-recourse loan to fund the remaining balance. The reason that you may choose a non-recourse loan over a personal loan is that the non-recourse loan is tied to the real estate it pays for, and not your credit personally. In the case of a default, the lender would seize the real estate property without touching any of your other property or assets. Two things to keep in mind though, one is that the non-recourse loan may have a higher interest as compared to a regular loan, and two, it may be difficult to get approved, since banks are looking at a non-recourse loan as more of a risk for them.

Rental Income

The main reason investors choose real estate is the income that’s earned by either buying and flipping for resale or to rent out to businesses or to families. However you choose to utilize the property, it’s important to note that since you’re buying the property with your self-directed IRA, it’s your IRA that owns the property. This means that any gains made on your investment go straight back into your IRA, and vice versa, any money spent on repairs or taxes come from your IRA as well.

Potential Risks

As with any investment, there are risks and some rules that could be deal breakers for some investors. Familiarizing yourself with the self-directed IRA rules and following them is just simply a part of the process. Violating rules that are set by the IRS could cause your IRA to get disqualified, and get you fined a percentage of the amount in your IRA.

The property in question cannot be used as a vacation house, or a secondary residence, or be rented out to immediate family. You’re also not allowed to do repairs or fixes yourself, you will always have to be at an arm’s length when it comes to your property.

One other possibility is that you could run into UBIT, which stands for Unrelated Business Income Tax. UBIT isn’t scary, nor does it mean you’ve done something illegal, it’s just a tax that your IRA will pay when using debt leverage to buy property, or does a deal with an organization that doesn’t pay corporate taxes.

The Main Six Self-Directed IRA Real Estate Rules

Monday, July 24th, 2017

It needs to be stated that there are definitely more self-directed IRA real estate rules to follow. These are just a handful of rules to get you started on thinking about real estate. Is it right for you? Do you suppose you can easily follow these rules?

Keep it separate

You and your IRA have to remain as two separate entities. Therefore, on all paperwork on your investments, your IRA is solely named. To also keep everything 100% IRS compliant, your IRA administrator helps you with documents and any sort of legal paperwork.

Funding real estate

The real estate property can be bought 100% by your IRA. Regardless if you have $50,000 in your IRA, and you need $100,000 to buy a property, the other half of the money can be loaned to your IRA. However, payments for that $50,000 loan will be paid by your IRA as well. Never by you personally.

Overnight stays

You also cannot stay overnight in the property. Period. Even for one night. If you violate this rule, there’s a chance that your IRA could result in serious tax consequences. This includes any and all personal use for vacations by yourself, or by your family. Think of it this way: your IRA owns the property, not you personally.

Disqualified persons

As mentioned above, the property cannot be used by you or your family. So who specifically are we referring to? Yourself, obviously, your spouse, your children or parents, including any in-laws. They are what the IRS refers to as Disqualified Persons. These same people cannot conduct any business with you or your IRA, and they cannot directly benefit from the property. Say there’s a repair needed, like plumbing, and your father-in-law has a plumbing company, he, unfortunately, cannot do the work needed, because he’s disqualified.

Repairs and fees

All services must be paid through to the IRA. Again, using the plumbing example, if there’s $300 worth of plumbing repairs needed, that money must come directly from your IRA. Utilities are paid with your IRA, or if there are HOA fees due, those also must be paid for by the IRA.

The money coming in

Finally, rent deposits, rent checks, any capital gain, is all funneled back into your IRA. Because again, all the money coming in and going out goes through your IRA. Simple as that.