When people consider investing in real estate,they usually think of investing within theirown cities or nearby. While investing inyour immediate area can be beneficial because it'sfamiliar turf, it may narrow your perspective of theoverall available real estate market and rule out farbetter options for return on investment. To obtain abroader scope of real estate opportunities, you have tocross county, state, and perhaps even internationalborders. To further the advantages of this type ofinvestment, it is important to explore the purchase ofinternational real estate with an IRA. The propertybeing held within an investment portfolio can, in manyinstances, enable greater diversification, tax rewards,and other benefits for the physician-investor.
It is often the case that self-directed IRA holders—investors who designate an account custodian to theirIRA—are under the impression that real estate lawswithin an IRA prohibit ownership of foreign real estateand strictly limit ownership of domestic real estate.This is not entirely true. The actual IRS rules for a self-directedIRA are less restrictive than many major self-directedIRA custodians, who aim to standardize andlimit the types of transactions that they conduct. Withsuch mixed messages, it is understandable why thepublic has been confused about what is and what is notallowed. With the right structure in place, your IRA canown international real estate—whether it's beachfrontproperty in Costa Rica or a rental villa in Panama.
Find the Loophole
The key to loosening the restrictions on your IRAinvolves some very specific steps. First, open a self-directedIRA and then form an IRS-compliant LimitedLiability Company (LLC), or IRA LLC. In addition tooffering freedom in making your own investment decisions,a self-directed IRA LLC gives you the ability toavoid 90% of the fees you might otherwise have topay. Putting this structure in place allows you to havecheckbook control over your IRA—you no longerhave to ask your custodian to write a check and paythem a fee each time you wish to make a transaction.
The way the structure works is really quite simple.The LLC itself would own the international realestate property, and the individual's IRA would ownthe LLC. By maintaining checkbook control over theIRA, you are able to pay any expenses associatedwith the IRA real estate investments directly fromcash within the IRA, in compliance with self-directedIRA rules set forth by the IRS. Though some mayquestion the legality of the IRA LLC structure, thecourts have consistently upheld it. If you are stilluncertain, a good advisor will be able to direct youin the establishment of such a structure and provideexamples of others who have already done so.
Make the Move
When you do make the decision to start investing ininternational real estate, your first concern will naturallybe directed toward the potential return on yourinvestment. You should perform a comprehensivestudy of the stability of the country in which you areconsidering investing. A government that is susceptibleto coups and civic strife will not be your best option.On the other hand, there is an abundance of foreignmarkets that are not only stable and low risk, butpoised for tremendous growth. Thorough research ofan area is always advised, as well as securing a reputableadvisor to help guide you based on your personalgoals, interests, and needs. When you are informedand take the proper steps, expanding your investmentoptions outside of the country can open up manyexciting, untapped areas to invest in for retirement.
Daniel Cordoba is a principal with Asset Exchange Strategies LLC,
which offers complete support and advice for nontraditional
investments such as real estate, horses, natural gas technologies,
bridge loans, currency exchange, marinas,ATMs, golf courses, and
motels. For more information, visit www.myrealestateira.com.