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Posted by on Apr 7, 2009 in Real Estate Investing | 14 comments | Print Print

Buying Real Estate with IRAs

A good starting point for those who are thinking of buying investment properties with their IRAs:

http://www.marketwatch.com/news/story/six-reasons-buy-real-estate/story.aspx?guid=%7bD93040B6-317B-4103-9E84-2D90CAC3B8A4%7d&siteid=yahoomy#comments

From the article:

Here are six reasons why buying real estate with an IRA is a potentially lucrative and wise move today:

1. A solid alternative to stocks

2. An investment well-suited for long-term investors

3. Purchasing a significantly undervalued asset

4. A steady income generator

5. A safer means to play the stock market

6. The ability to flip real estate with no tax bite

Purchasing a significantly-undervalued asset is not easy.  There are many investors in the market currently, and the lower-end properties are selling fast and furious. 

Look at one of the hardest-hit zip codes in the country, Oceanside’s 92057, where homes are regularly selling for 50% below peak-pricing. 

This year there have been 41 houses sold that were listed under $200,000, and the SP:LP ratio is 100.16%. 

Only 14 of 41 have sold for less than list price!  They are averaging $143/sf.

For those who click on the link to the article, also check the comments section below it - heated debates on both sides, with a number of people saying it is the worst thing you could do.  We’ve mentioned here below the perils of maintaining the properties, and managing the tenants.  Proceed with caution.

(hat tip to Bryce)

14 Comments

  1. Take a look at housingtracker for inventory and asking prices: http://www.housingtracker.net/asking-prices/san-diego-california

    Check-out how low inventory is and the spike in list prices.

    The market is turning. People who were looking for the bottom, well, here it is. Or rather, you missed it in January.

  2. Market isn’t turning, it’s simply taking a breath before the next leg down.

  3. I agree with TJ. There’s a bunch of optimistic sellers coming on the market.

    If you look on Rich T.’s site, he has a graph that compares asking prices with actual selling prices. The two have diverged tremendously in the past year.

    Don’t worry, there’s no escape from market fundamentals. We’ll see this year’s downward slide soon enough…

  4. I’ve bought property recently, but it’s hard to believe the market has bottom with statistics such as these:

    http://www.reuters.com/article/gc03/idUSTRE5363EV20090407

    “Dann Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier.

    “He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year”

    There may be bargains out there on the low end, but it would be easy to be too optimistic.

  5. Mozart.

    I’d be willing to take a wager that the overall market has not bottomed.

    Maybe the very very low end it has started to bottom, but it’s not going to turn in this environment of weak employment and significant overhang. I’d bet in 2 years you’ll be able to find at least as good of deals as now at your leisure instead of fighting for them.

    On the middle and high-end. I’m sure the divergence between list and sales price has to narrow. Those prices will be lower in 2 years.

    Since I personally am looking for a mid to high end property, I will need to wait a little longer. It depends on what you’re looking for.

    Make no mistake, this is no light recession. The effects will also not be light.

    Chuck Ponzi

  6. Mozart, I’ve heard that several times the last 3 years. The first time was in late 2006, incredibly.

    Like Chuck points out, it depends on the market but a lot of markets haven’t shown any real signs of a bottom. People have been calling false bottoms all the way down. The graphs even show these false bottoms.

  7. Does anyone know of any accountants or tax advisors that assist with IRA real estate purchases? I’ve been wanting to do this for 2 years, but I can’t find any accountant or tax advisor who will touch it with a 10-ft pole. Willing to work with with someone anywhere in the state of CA.

  8. Let’s keep watching the market here in San Diego. It is bottoming and you can see it in the personal stories you read here, the people you know eager to get into a place, and the statistics.

    Did anyone look at Housing Tracker? Look at the national too. San Diego is spiking in both directions. Inventory down and list prices up. I know, I know, there’s a “shadow” inventory controlled by a banking cabal. But, the evidence is also there that people are not listing their houses. Is it a 6 month supply yet? And by the way, take a look at Jim’s listings for what is moving.

    My point is mostly that if people wanted to jump in and get a deal the herd is not far behind. Something that would benefit a person looking into the IRA strategy while we are in overshoot territory.

  9. the herd is not far behind

    If you’re really quiet you can hear the rush of a million little lemming feet rushing towards the cliff. :-)

    Seriously… bottoms last a long time. The 90′s San Diego bottom in the Case-Shiller index was in the low 71′s, but the index hung in the 71′s for six months and below 73 for well over 2 years.

    IMHO we’re facing an L-shaped recovery, so there’ll be no rush even when the bottom arrives.

  10. re: The herd is not far behind. . .

    Who is in this herd? All those folks who want to buy $1m houses today, with overpriced jumbo loans, the need for a huge downpayment, at the same time their retirement/college fund just got cut in half?

    I think the herd has been culled. Mid to high end homebuyers today not only need very serious amounts of cash, but also the desire to spend it on a house, rather than retirement or just holding on to it for security in these uncertain times.

    But I will agree that inventory will be low until the banks take action and foreclose on deadbeats- if they ever do.

  11. I think the housingtracker data is misleading if not looked at closely. The house price increasing at the 75th percentile most likely shows that the volume of inventory $775.

    I wish there was a good monthly histogram showing monthly quantity of list prices (maybe per by $10,000 increments) to look at the popularity of “ask” prices. Medians and Means are often too misleading and don’t show the full spectrum of housing. Another good one would be histogram of closing prices. If these existed the reason for the increase $ in the 75% percentile would be easy to see.

  12. Oops, left off mi-dsentence. Should have read something like

    “The house price increasing at the 75th percentile most likely shows that the volume of inventory >= $775k is disproportionately high”

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