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Create IRA Wealth with Real Estate Notes

By: Joshua Geary - BestOnlineResults.com

Traditional IRAs are fairly limiting when it comes to the types of investments you can make. With a self-directed IRA, however, there are very few restrictions on what you can invest in. The first step in creating a truly diversified investment portfolio is creating a self-directed IRA or Roth IRA, or converting your traditional IRA to a self-directed account.

What can you do with a Self-directed IRA?

Almost any type of investment is possible with a self-directed IRA. There are almost no restrictions, and in fact the only thing you cant do is use your IRA to purchase collectable items such as coins, or make investments that directly profit you or your descendants. Most of the inherent advantages of IRAs relate to the tax laws that govern these accounts.

- Buy and sell real estate notes without being subject to Capital Gains Tax

- Enjoy tax-deferred status on all your IRA holdings until you reach the age of distributions (59 1/2). You are only taxed on money you withdraw from the account.

- Earn interest on every dollar earned by your self-directed IRA the tax-deferred status of an IRA means all profits stay in the account, untaxed until they are withdrawn.

By creating an IRA trust and appointing this trust as an IRA beneficiary, it's even possible to pass money to your spouse and children tax-free after your death, or to put tax-free money aside for estate taxes. This is an excellent way of bypassing tax restrictions, particularly if one or more beneficiaries are a minor.

Roth IRAs

Roth IRAs are very similar in terms of what you can buy and sell. However, the tax laws are slightly differentwith a Roth IRA you are subject to different tax types than with a self-directed IRA. If you own a Roth IRA, the profits made by your account are not subject to tax; however the contributions you make to the account are not tax-deductible as they are with a traditional or self-directed IRA. Once you reach the age of distributions, however, every withdrawal is tax-free. Another advantage of the Roth IRA is that there are no minimum distribution rules, so once you reach 59 1/2 there are no restrictions on how much money you can withdraw, or how much you can leave in your account.

Real Estate Notes Generate Passive Income

A real estate note is the contract made between a money lending institution and the purchaser of the property. The note details the terms and conditions of the contract and financial institutions often buy and sell these notes on the secondary mortgage market. Private investors can also create or buy real estate notes to create streams of passive income, so called because once the investment is made very little further effort is required to keep it ticking over. This is why an IRA is an ideal vehicle for investing in real estate notesonce the note is bought, profits continue trickling into the account, untaxed and earning interest. For this type of investment account, steady streams of revenue are an excellent way to create wealth in the long term. An additional advantage of notes is that unlike property itself, notes are not subject to the fluctuations of the real estate market. The face value of a note doesnt change even if the property market cools off.

Who can buy Notes?

Yesyou don't need to be a member of a financial institution to buy notes. With the potential to buy real estate notes at a discount of up to 30%, there is plenty of profit to be made. You can even create notes if you have the funds to do so. For people who need to borrow money for a real estate purchase but would prefer not to borrow from a bank or other financial institution, working with a private investor is the only option, and these types of loans can be particularly beneficial for the investor. Privately-funded mortgages carry much higher interest rates than those created by financial institutions, because to a private investor, the risk is greater.

Article Source: http://www.articles2know.com

Joshua Geary is the owner of Asset Exchange Strategies, LLC, which helps those nearing retirement learn how to invest in real estate notes in their IRA. Visit his blog for the latest tax deferred self directed IRA strategies.

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