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What to do before investing in foreclosed property with your IRA

Buying a foreclosed property is different than acquiring one through normal channels, and so buyers need to have extra knowledge.

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Buying a foreclosed property is very different from buying a property through normal channels and thus requires a deeper understanding of the subject matter. If you are looking to invest in a foreclosure property through your IRA, then here’s what you need to do: Buying a foreclosed property is very different from buying a property through normal channels and thus requires a deeper understanding of the subject matter. If you are looking to invest in a foreclosure property through your IRA, then here’s what you need to do:

1. Convert your IRA into a self-directed IRA

Having your IRA plan in place puts you in the ideal position to get a good deal on a foreclosure purchase. First, you need to convert your traditional IRA to a self-directed IRA as it gives you the freedom to invest in non-traditional investments like real estate, business, mortgage notes, tax lien, private note, etc. Purchasing real estate through your IRA can prove to be beneficial as it gives you the ability to react to property offers immediately, as opposed to waiting on a third party for a loan approval.

Consider this – If you plan to buy a property through regular channels and require a loan to purchase it, you must be able to meet the eligibility criteria set by the governing bodies. This means that if you want to avail for a loan to purchase a property, you are required to have an excellent credit score, funds to make at least 50% of the down payments and a high income to debt ratio before the loan is approved.

Since distressed properties like foreclosures require immediate bids, your IRA provides you with the necessary funds to put down an offer on the property. Another benefit of using your IRA funds to purchase property is the flexibility it provides in terms of payment options. You can choose to pay for the property partly in cash or you can even co-invest with your non disqualified family members, partners or friends using your respective IRA funds. This also helps you avoid relying on money lenders or loans to purchase your property!

2. Consult a foreclosure specialist

The foreclosure laws and regulations vary from state to state and can be extremely complicated, so you consider enlisting the help of a professional before investing in properties. Do your research before choosing your consultant, talk to various IRA advisors, look for information pertaining to the number of short sales or foreclosures have they have consulted over before making your decision. You can also approach a realtor or a real estate attorney who is certified in foreclosure sales to guide you through the process.

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Be sure to work out the numbers, before jumping headlong into any investment. (Source)

3. Be realistic about the time frame

You must factor in the time it takes to complete the purchase process since buying foreclosed properties have certain waiting period requirements. You need to ensure that the timeframe of the purchasing process suits your investment goals and financial needs. Think of the various aspects of the sale, for instance, how you would handle a purchase if the value of the property declines in value? Would you be able to afford to wait for it even so? Will you be able to see some ROI in 5 or ten years? Will you be able to receive a decent sum of money if you rent it out? Be sure to work out the numbers, before jumping headlong into any investment.

4. Analyze the property based on previous land rates

Before you make an offer on a property, do your research; try to find more details about the neighborhood, land value as well as the property rates in the previous years to ensure you make a well-informed decision. If there are multiple properties available, compare them and see which option will prove to be a good investment.

Pro tip – Ask your real estate consultant to provide you with the absorption rate of the area to help gain a clearer picture of the real estate situation in the concerned area. A slower absorption projects a lower value for the property, while an increase in the absorption rate means the projected value of the property will most likely increase as well.


DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday, and NuWireInvestor. If you need help and guidance with traditional or alternative investments, get in touch with Rick.

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