As the real estate market begins to bottom out investors are starting to flock to certain foreclosure areas. Of course what comes with the heard is the passive, casual investor. As most investors know in order to pick up these properties you need cash and these days investors are utilizing and diversifying their 401k's and rolling over to a Self-Directed IRA. Although there are a countless number of investment deals in the real estate industry one must do their homework before parting ways with their retirement money. Here are three important rules to live by before writing your first check to escrow.

1) Build Your Team Around You

One of the most important thing investors forget to do is consult with professionals. All to ofter people begin to believe that they magically after never buying, rehabbing, and flipping a home all of the sudden are real estate professionals simply because they have the IRA funds and/or cash to do so. Let me tell you even the real professionals in this industry got killed over the last to years, many of them with 30-40 years of market experience. The key to avoiding this pitfall is building a strong team around you. Don't be foolish to think that you can just figure it out as you go, after all this is you retirement you are talking about. Consulting with professional agents, escrow officers, and appraisers is a must. Yes their knowledge cost money but it will also save your money in the end as well. In the grand scheme of things what is a few dollars when you are leveraging your retirement funds in order to capitalize on the opportunities out there. 

2) Make Sure to Purchase Title Insurance

Just because you are paying cash and there is no lender requiring you to purchase title insurance doesnt mean that you shouldn't purchase it. After all the lenders made you do it for a reason. There are often issues with property titles that even the most experienced title officer wont notice and you need to protect your rear end. For example who is to say that the transfer deed wasn't somehow forged by someone pretending to be the sellers. Or who is to say that the husband didn't threaten to kill his wife if she didn't sign the paperwork to sell you the home. You may think those are extreme examples but trust me I have seen it before, and these days nothing should surprise you. Point being just spring for the title insurance

3) Always Leave a Cushion

Now after you make your projections for the total cost of the proposed property you always have to leave yourself a little bit of a cushion. By that I mean you have to always expect things to cost you more. If the total rehab costs are $5,000 allocate $7500 for it. With these rehabs you always have to expect the unexpected. On one property that one of our clients purchased the estimated rehab cost was $3,000, well after getting into the rehab they noticed the floor was sinking in one of the rooms. After the contractor gave their estimate they were faced with another $3,500 unexpected cost. That additional cost could sink a deal. Another thing to plan for is having to hold onto the property for longer than anticipated. Just because you expect the house to sell in 90 days doesn't mean it is going to, especially in this credit market. You may even have to rent the property for 6 months before the market bounces back enough to sell your property. Bottom line you have to expect the unexpected.

These are just a few rules to live by when investing in real estate. The market is now at a level where investing with you retirement funds is not only feasible but can actually be quite profitable. Contact us anytime if you have any questions or just want to run a transaction by us. 

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Many people are not aware and are not told about the options that they may have with a 401k rollover. You see Bank of America, Charles Schwab and several other large investment firms starting to really advertise for  clients to utilize 401k rollovers, with one catch they are not truly self-directed because they limit what you can roll your money into. One of the main investments that is usually not spoken about is real estate.

There is the constant argument  of which investment is better for your 401k rollover, land or stocks? While stocks are easy to buy and sell, easy to track, and companies are required to release information, real estate has many other advantages. The most important being that they cant make more land, Dubai excluded. The general public as a whole are more comfortable with stocks because that is what they are told to do. Stocks however can become worthless and essentially lose all of it's value, think Bear Stearns, Lehman Brothers, or all the dot-com companies.

As a whole, Professor Jeremy Siegel of the University Of Pennsylvania's Wharton School of Business says that stocks show an average gain of seven percent a year when data are controlled for inflation. This average works when looking at many stocks over many years. It may or may not work for any individual stock; it doesn't work for three lousy decades in our memory-the 1930's, 1970's and this one.

There are several investors who have of course blown this average out of the water and there are some who have lost it all investing in stocks. The alternative with real estate is transparency. Each deal requires several levels of checks and balances, and precautionary measures that the investor can take.  While the past year has shown ever the largest companies can ultimately become worthless, real estate will still have some value regardless of any economic downturn. You may not be able to sell or may have to hold the property longer but you will never receive a notice that your investment is gone and you have nothing. 

Farm value in current dollars averaged $2,160 per acre nationwide on January 1, 2007, up from $974 in 1998, a 13.5 percent average annual gain according to the U.S. Department of Agriculture. Cropland during that period rose from $1,340 to $2,700; pasture rose from $489 to $1,116. That is just raw land. 

A range of properties, from rental houses to apartment  buildings to parking lots, can provide a constant stream of income that will build IRA wealth. Many people think they don't have the money to purchase income producing property simply because they lack savings. However by utilizing you IRA and doing a 401k rollover there several profitable purchases that can be easily financed. 

The most important factor when  investing in real estate is that it can appreciate as well as have positive cash flow. Consider this, you purchase a parking lot that is generating a 12 percent return on your investment annually, including your positive cash flow. Then 10 years down the line as the city grows an parking becomes more scarce you sell the property and not only have you been collecting the income for 10 year you will earn the appreciation on the property as well. 

All in all 401k rollovers allow you to invest in stocks, land, businesses, rentals, cattle, etc. My advice is to not put all of your eggs in one basket and invest in the simple model of diversification. Sounds simple yet the large majority always seems to turn a deaf ear to it.  

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With the uncertainty within the financial industry these days it is no wonder investors don't know where to go with their money and investments. Over the past year we have seen such financial industry staples such as Lehman Brothers, and Bear Stearns go under, and even had a $50 billion Ponzi scheme by Bernard Madoff exposed. With all of the uncertainty in the market a great alternative can be Self Directed IRA's. With a self directed Ira investors have more control over their investments. Through the aid of a custodian such as Pensco Trust Company investors can roll over their 401k into anything from land, rental properties, tax liens, or even a pizza parlor. 

In fact many investors are now using their retirement accounts to diversify their investment strategy. With real estate prices at historic lows now may be best time to invest in real estate. Bob Wooderd, a 55 year old Florida business owner saw his retirement account lose about 30 % of its value last year and he is now actively searching for deeply discounted condos through out the Florida. ''There are condos now selling below the cost to build and provide a pretty handsome rental income. I have used the combination of my 401k and non-recourse loan to purchase 3 condos in the last 4 months and my IRA is receiving roughly $800 per month in positive income.'' says Mr Wooderd. Over at Brooklyn Troy we have been providing investment opportunities for our clients by rolling over their retirement accounts into self directed IRA's. The real estate market hasn't been this prime of a potential investment in years. Whether it is land, a rental condo in florida, or using your funds to start that dream business self directed IRA's provide a nice supplement to your existing retirement investments. 

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