Corey Salois

Now that we are approaching the fall season many sellers are dissappointed with the activity we have gotten throughout the summer which is supposedly our "prime selling season". My sellers are asking me "what do I do now?"

According to the National Association of Realtors pending home sales are up for the fifth consecutive month, the first time in six years for such a streak. The Pending Home sales Index rose 3.6% to 94.6 from an upwardly revised reading of 91.3 in May, and is 6.7% above June 2008 when it was at 88.7. The last time there were five consecutive monthly gains was in July 2003. (National Association of Realtors).

So with home sales beginning to rise do you as a seller leave your home on the market throughout the winter? My answer is yes. And here's why. We saw pending home sales begin to rise late into the season meaning that the consumer confidence is taking some time to come around. If you leave your home on the market throughout the winter what's the wrost that could happen? It could sell? There are usually fewer homes on the market throughout the winter months meaning that there is less competition. Also, there are fewer buyers during the winter months but the buyers we see during the winter are generally more serious. They aren't your vacationers who have come up for vacation and decided to take a look at some real estate. They are generally your vacationers who were here in the summer and now after getting back to home they are thinking about making the move. If you have a vacation type of property it may be a good idea to think of putting a renter in there for 6 months to 8 months. Then someone who is looking at it for a vacation home can have some incentive to buy now...rental income through the winter and a guaranteed price now.

If you have any questions or would like to discuss a marketing plan for selling your property, feel free to call anytime. Thanks and have a great day!

It seems like we can't turn on the news or read a paper and hear about the dismal state of the real estate market and economy in general. Well, I have decided to take a look at the positives of the current state of both. Here are the reasons:

1) RECESSION=OPPORTUNITIES - There is no better time to purchase "screaming deals" as now. We have seen prices come down from all time highs and yes...they will go back up, the question is when.

2) INTEREST RATES ARE LOW=OPPORTUNITY - What a great time to buy when we are seeing interest rates at all time lows!

3) TAX CREDITS=OPPORTUNITY - There are so many different credits out there that can help you get into a home. The $8,000 first time home buyer credit is a wonderful opportunity!

So with all of these things combined as they are now...WHY NOT BUY? We are seeing some outstanding opportunities for investors. Call today to find out how you can invest in real estate.

With the stock market in the state it is in lately many people have been looking for alternatives. Well, since I am in real estate and real estate is what I know and trust we have looked into purchasing real estate using your IRA and have been very successful at it. To get us started I have below some of the most common questions people ask.

Questions and Answers

Using Your IRA to Purchase Real Estate

What is a Self-Directed IRA?

A self-directed IRA is legally no different from any other IRA. The term "self-directed" simply means that you, the client, choose your IRA's investments. What this means for you is MORE CHOICES & MORE FLEXIBILITY for your retirement savings plan.

What can a Self-Directed IRA invest in?

The rules governing what and IRA CAN invest in are exclusive - not inclusive. The rules only specify what you CANNOT invest in. Therefore there is an unlimited array of possible investments that fall within the permissible boundaries. The IRS defines that the following assets are EXCLUDED

Life Insurance contracts (e.g. a life insurance policy on the life of the IRA owner)

Collectibles (e.g. antique rugs, cars, stamps, furniture, etc.)

Capital stock in an "S" corporation

Can I buy real estate using my IRA?

Yes! You can buy real estate with your IRA, Roth IRA, Sep/IRA, Educational Savings Account, or 401-K, 403b, 457, ESOP, and other pension plan rollover accounts. Imagine not being confined to investing your hard earned money in the volatile stock market or limited return CDs. Your IRA can purchase raw land, rental properties, commercial property, condominiums, mobile homes, boat slips, and foreign real estate

How do I buy real estate with my IRA?

You will need to transfer your existing IRA(s) or rollover your pension plan accounts to a trust company that will allow you to direct what your IRA buys. Then you just find property and go through the steps of each trust company.

Why haven't I heard of this before?

The fact is that you have been able to buy real estate within your IRA since the first day IRAs were created 31 years ago. You haven't heard of it because until recently, the use of IRAs and other retirement plans to purchase real estate was an option that was not well known. Most custodians do not offer truly self-directed IRAs. They will allow you to invest in their approved list of investment options. The reason being, Brokers are compensated when they sell stocks, bonds and mutual funds. Therefore they are not trained in the details of performing real estate transactions.

How do I know that this is all legal?

You can go to the IRS website and search for Publication 590 which is the section which defines everything the IRS wants you to know about IRAs. It tells you what you CANNOT do within an IRA. You will notice that real estate is NOT mentioned as one of the asset types in which an IRA is prohibited from investing. There IS mention that you cannot borrow from an IRA or use an IRA as collateral for a loan. Because that would be a prohibited transaction, many have felt that real estate investing would be a problem. BUYING REAL ESTATE IN AN IRA IS PERFECTLY LEGAL AS LONG AS YOU AVOID SOME KEY PROHIBITED TRANSACTIONS.

Are there any downsides?

There are not any downsides per se, other than the fact that there are certain types of transactions that you cannot enact through an IRA, i.e. prohibited transaction.

How do I take funds out of my IRA to buy real estate, without paying taxes and penalties?

YOU DON'T take the funds out. Buying a 100 acres of ranch land in eastern Montana is the same as buying 100 shares of IBM stock. Buying real estate is just like a purchase of a different type of investment.

Can I use my IRA for a down payment?

Yes, in many cases you can. On the other hand, there are important rules and potential consequences that have to be considered when you do. One of the prohibited transactions for an IRA is to serve as collateral for your loan. Essentially, what this means it hat your IRA, by virtue of it being a down payment on your real estate purchase, would be serving as collateral for your loan to buy the property, whether you take the loan solely or guarantee it for your IRA.

So, I thought you said I could use my IRA for a down payment?

Your IRA can obtain a "non-recourse loan" when it puts a down payment on a purchase, and then finances or leverages the balance by taking out a loan or mortgage for the difference between the deposit amount and the purchase price. "Non-recourse" means that the only choice the lender has in the event of a loan default is to take back the property and sell it. Banks will generally require 30-35%+ down for a non-recourse loan to an IRA.

Are there alternatives to a commercial non-recourse loan?

A seller of a property can also extend a loan to an IRA by offering what is called a "seller carry-back loan", eliminating the need for a bank loan. This can work to your advantage because a seller may be willing to accept less money down if they want to sell badly.

Do I have any other options if my IRA doesn't have enough money, and I can't get a non-recourse loan?

Absolutely. You can partner with your IRA and combine your IRA funds with your personal funds to make an all cash purchase. Don't have enough cash? You can combine your IRA and personal funds with your wife's or husband's savings, her or his IRA, funds from your friends, children or other relatives in order to enter into the transaction together as tenants-in-common. Each investor appears on the grant deed as a percentage owner, based on the amount of each investor's contribution.

If I buy rental property with my IRA can I manage it?

Yes and no. You CAN perform ministerial functions for your property much as you would for any other asset. This could include making decisions such as to whom to rent, what plumber to contract with or what builder to choose when you make additions. You will have to instruct your trust company to pay these bills because you cannot pay them yourself. You cannot build a porch yourself, put on a new roof, etc. or in general add any material value to your property through transactions with it. It is a very thin line to walk and many people agree that it is better to be safe than sorry and hire professional management of your rental properties.

I plan on purchasing a property with my IRA that will generate rental income. Does the rental income have to go back to my IRA?

Yes, all income generated by a property owned by your IRA must be returned to your IRA, in order to retain the tax deferred or tax free status of the investment.

Can my IRA purchase real estate that I own presently?

No. This is considered a prohibited transaction. You may not purchase a property or interest in a property, which is presently owned by a disqualified person. Disqualified persons would include yourself and family members of linear descent.

May I live or work in a property that my IRA owns?

No. This is considered a prohibited transaction. You cannot have any personal use or benefit from the property while it is held by your IRA. This means you can't purchase your residence, time share or lake property that you intend to use during the summer and rent the rest of ht year. If you purchase a rental property, the tenants cannot be disqualified persons under Section 975 of the IRS Code. Disqualified persons are generally those of lineal descent of the account holder or the account holder's spouse.

Can my IRA invest in a newly formed entity (limited partnership, limited liability company, c-corporation, land trust) that will be involved in real estate?

Investments in newly formed private entities are not prohibited, with the exception of sub chapter S corporations.

May I use finds from my IRA to renovate property in order to sell it at a higher price?

Yes. Your IRA must pay any and all expenses (property taxes, insurance, appraisals, debt payments, etc.) associated with a property that is owned including renovation, improvement, and repair costs of the property. All profits that are associated with your IRAs investment in a renovated property must be remitted to your IRA.

Why should I use a Roth IRA for real estate investing?

IF you invest with your Roth IRA (and by the way, your Roth, SEP and regular IRA can all invest together in a real estate investment as tenants-in-common), all the income and capital gains will go back to your Roth IRA tax deferred. Because Roth IRAs are funded with after tax funds, if you leave the earning in the Roth for five years from the date the Roth was first established AND until you are 59 ½ the entire Roth INCLUDING THE EARNINGS, WILL BE TAX FREE FOREVER!

Can I buy a business using my IRA funds?

Yes. Few people realize that you can buy and operate a business with an IRA. Some people with full-time jobs will establish a new business just for their IRA account. Such businesses, whether they buy real estate or operate a gas station, restaurant or dry cleaner, are called operating companies where they provide goods and/or services. When your IRA owns and operates a business, it is subject to taxation just like any other business. Otherwise, the IRS says, the IRA could provide unfair competition to those businesses that have to pay those taxes. This tax is called Unrelated Business Income Tax (UBIT) - "unrelated" because and IRA is a tax-exempt entity.

Can my IRA invest in my existing business?

Yes. Let's suppose you are an owner of a company that is willing to take on additional capital. If the company is an "operating company" as discussed above, AND you own less than 50% (including the sum of the ownership positions of your "disqualified persons"), then your IRA can invest funds in the company if it is a good investment for the IRA and not made to protect your non-IRA interests.

Now that I know what I can and cannot do with a self directed IRA, where can I get one?

There are approximately 20 custodians in the United States that are dedicated to providing self-directed IRA services.

As always call with any questions. 406-253-0531.

Have a great 4th of July!

So the majorhype in today's real estate market is finding the best deal possible and many people are turning towards foreclosures and bank owned properties to find these deals. But, are these truly the best deals out there? Each market is different and that is why it is important to find someone to work with in that market that understands market conditions, foreclosures, short sales and has experience dealing with banks.

In the Flathead Valley we are seeing our share of foreclosures, not nearly at the rate of many other places in the country but they are here. The trend we see though is a little different than in other areas. Because our market has always been a large second home market we are seeing a little different price range for foreclosures than some areas. We aren't seeing as many homes in the $150,000 - $250,000 range as one might thing. We are seeing quite a few in the $350,000+ range....even up to over a million. There are a few reasons for this. If it is a second home not all of the governmental protections apply and so rather than people fighting harder to keep their homes they are letting them go back to the bank. The same goes for investment property and commercial property.

So before I get into this too far let's go over a few different terms. It may be review for a lot of people but it is always useful information. Here is some terminology

REO - Stands for Real Estate Owned. This is a property that goes back to the mortgage company after an unsuccessful foreclosure auction.

Short Sale - Means that the bank will sell the property for less than they are owed.

Foreclosure - A home that is in the process of going to auction.

Trustees Sale - The sale of property that takes place on the courthouse steps.

Ok, so we are seeing quite a few short sales. These are good opportunities for buyers to be able to get into some properties for great deals. Don't be fooled though, just because it is a short sale doesn't always mean it is a good deal. Many times properties are in a short sale because they are no longer worth what was owed on them. People who purchased homes at the height of the market and then leveraged them or received loans for more than the purchase price of the property may be in these situations where their bank is willing to sell the property for less than they are owed. So be careful on these. It is important to do full research on the history of the property, how often has it sold, what has it sold for in the past, etc. Also, if you are the seller of a short sale home you have to be careful and have good legal advice so that when you close on the property you are assured that the bank cannot come after you for the balance owed.

Trustees Sales and Foreclosure auctions. Are these good deals? Most of the time yes but again it is so important to do your homework and research these properties thoroughly. When a property is sold on the court house steps is is transferred by a Trustee's Deed which is not backed by title insurance and so is not necessarily insuring the property against any other liens that may come up. A good example of this is that the IRS has the "Right of Redemption" meaning that if the IRS has a lien on the property for unpaid monies they can come back up to 120 days after the sale and reclaim the property. Also, when you buy these properties you may be buying into other liens that are due. If people aren't making their house payments it is possible they are also not making other payments. That is why it is important to make sure that there are no other liens, judgments, etc. filed against the property.

REO. These are usually the safest way to buy foreclosed homes. The bank has either bought back the property at auction, the property didn't sell or they have done a deed in lieu of foreclosure. The nice thing about these sales is that they are insured by a title company and come with title insurance and are transferred by a special warranty deed which is much safer than other types of deeds.

So, this is a brief introduction into short sales, bank owned properties, etc. If you would like more information or would like to find out about foreclosures in your area call me today to find out how you might be able to find some great deals.