With the crash of the real estate market comes many opportunities for investors. Especially when purchasing the abundance of Short Sale and Foreclosure homes. There is however on caveat to these purchases that one truly has to consider and that is that you must honor any existing leases on the property for the duration of the lease term. 

What many people are doing that no longer want their homes or are planning on letting it foreclose is relocating to a new home and renting out their previous residence. The reason for this is that these home owners choose to say rent a house around the corner for $1200, and at the same time collect rent on their home for the same or often times even more money. Well instead of paying that money to their mortgage they just keep it and use it for their own person expenses since they have decided to let the house go. All fine and dandy for them but it is the tenant who actually gets screwed over when the home is sold, or foreclosed on. Or do they?

If you've got an existing lease, the lender or whoever buys the property int he foreclosure auction has to honor your lease. The Protecting Tenants at Foreclosure Act, Pub. L. No. 111-22, §§ 701-704 (2009) became law on May 20, 2009, and applies to state eviction proceedings, and requires that a new owner who took title to residential rental property through foreclosure honor existing leases until the end of the lease term. 

Even if the new owner wants to occupy the foreclosed property as a personal residence before the end of the lease term, or your lease expires within 90 days, or your tenancy is month-to-month, the owner has to give you at least 90 days notice to terminate the tenancy.  

So this may help protect innocent tenants whose owners were not completely up front with the tenant but it may put a monkey wrench in your plans as an investor, especially if you plan to rehab and/or flip the home.  

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You would have to be living in a cave if you haven't seen or heard about the implosion of the real estate market over the last two years. Ever day in the news it is foreclosure this and a new regulation that. Not to mention although some 401k and IRA account have seen some recover from those late 2008 lows. Don't get your hand caught in the cookie jar the next time the market takes a dip. Now many investors have been waiting on the sidelines not sure what to do with their retirement accounts. While it is easy to reproach the mortgage brokers, the government regulators, and the infamous people on Wall St., focusing on who to blame on the recent financial crisis may cause you to miss one of the countless opportunities out there right now. 

Many people are unaware that they can use their IRA and 401k funds to purchase and invest in real estate. You can roll a portion of your 401k into a Self-Directed IRA and purchase investment properties to rehab and flip or just sit on and rent out. Some markets have been hit by more than 50% and some or even undervalued today by 40%. The best part about using your IRA funds is that you can now obtain and IRA Loan to help you acquire  or rehab your property. Some of the IRA lenders are now lending up to 65% of the value of the property you are looking to purchase. Here are some facts about IRA Lending: 

What is IRA Real Estate Lending?

IRA real estate lending is the process by which you can self-direct IRA or other qualified retirement funds to purchase real estate. This is accomplished by funding the down payment of the purchase price with a qualified account and then obtaining a non-recourse loan to finance the remaining balance of the property's purchase price. Self-directed accounts can even be used to purchase property or buildings in other countries. For more information on opening a self-directed IRA account, please contact  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

In today's market, mutual funds and other Wall Street investments that were deemed safe and fail proof have in recent years shown significant volatility and in most cases dramatic losses. Many people today are moving towards self-directed retirement accounts where they control more closely what their retirement account should invest in. Because IRA's are qualified accounts, they are classified in such a way in which they cannot be accessed without negative tax consequences until much later in life. This can be a problem if you want to purchase investment real estate but simply don't have any non-retirement funds available to do so.

In order for a self-direct IRA to fund a real estate investment, per IRS tax law, a qualified 3rd party administrator must facilitate the purchase of the property which ensures that the individual does not have personal possession or direct access to any qualified accounts. If this rule is not abided by, then the IRS classifies the money as an early withdraw which triggers not only a financial penalty, but also causes the proceeds to be subject to ordinary income tax rates. The 3rd party administrator facilitates the purchase of the asset and title is vested in the name of your IRA or designated account. A property can NOT be purchased in an individual name and afterwards transferred to your self-directed IRA. This is referred to as self-dealing and is strictly prohibited by law. If you purchase real estate within your self-directed IRA, you will not be able to live in the property or own it in your personal name. This also includes your family and anyone else who may be connected with the transaction that could stand to personally benefit from the transaction. Your IRA is only allowed to purchase assets solely for investment purposes and void of any personal gain or benefit prior to taking a distribution from the account.

Are there penalties for misusing IRA loans?

There are fines and penalties for violation of the terms of IRA lending. The 3rd party administrator can also assist you in confirming that a transaction is eligible. Another way to properly plan for correct use of this type of investment is to work with a knowledgeable CPA and financial planner. Prohibited transactions from IRA loans can also lead to complete disqualification of the IRA itself, so it is imperative to be very careful in this matter.

What is the process for setting up an IRA loan?

Once you have found a trusted 3rd party custodian, they will assist you with paperwork and compliance documentation necessary to transfer your qualified accounts to their trust account. Brooklyn Troy works closely with and recommends Pensco Trust Company or The Entrust Group for a 3rd party custodian.  First, a plan is decided upon and approved. Then the funds from your IRA are rolled over into the new self-directed IRA held by the administrator. If you are pooling a number of IRAs, as in perhaps you are joining your IRA with that of your spouse, all these funds will be rolled into a new self-directed IRA. Upon a property being selected to purchase, the custodian will then take appropriate steps in order to help you facilitate purchase that will be title in your IRA.

This subject is still a bit of a mystery to many people. Because it is an alternative investment as oppose to a mutual fund or more widely quantifiable investment, most stock brokers and investment advisors simply don't have experience offering advisement in this area. Self-direct IRA's are an ideal way to take advantage of the present real estate market. Many financial institutions deem this type of non-recourse loan a safe and lucrative because of the large down payment required (typically 35% or more) and the excess account reserves that ensures repayment of their loan.

Remember this is one investment tool to help you diversify your retirement investments. While no one can predict what all the markets will do over the next ten years one thing is for sure there will be ups and downs, and this time you dont want to have all of your eggs in one basket. The only free lunch in investing is with diversification.  

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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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Here is a quick delinquency summary on the commercial loan market from Trepp:

• Troubled loans transferred to special servicers  grew to $68.3 billion versus $12.3 billion;
• Loans of concern have caused servicer watchlists to swell to $146.0 billion, compared with $124.0 billion; 
• Hotel delinquencies surged to 13.87%, up from 1.2%;
• Multi-family delinquencies reached 9.27%, increasing from 2.8%
• Overall delinquencies climbed to 6.07%, rising from 1.3% - reaching an all time high.

As you can see commercial delinquencies  like those in the residential market are still increasing. Some experts are predicting the peek for commercial loan delinquency wont be seen until 2011. What this means for investors is an opportunity to expand your portfolio and pick up some great commercial properties at some amazing prices. Primarily most investors tend to utilize their retirement funds for the purchase of residential properties, but there are increasing more and more amazing opportunities arising in the commercial sector. Although financing is a but more difficult to obtain utilizing your 401k for the acquisition of some commercial properties is become increasingly more lucrative. Keep your eyes peeled on those struggling commercial properties in your area, their are plenty of opportunities out there to be had.

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Many people are still unaware that just because their 401k balance isn't enough to purchase a property it doesn't mean that they can't take advantage of the current real estate market. The fact is that there are several options for investors to utilize the funds that are available and successfully roll them over into a real estate investment. What is the primary vehicle needed to complete this transaction? Non-Recourse Loans.

There was a previous entry several months back that goes into a lot more details, but in a nut shell you are able to obtain a loan, up to 70% loan-to-value, to purchase an investment property using your 401k or IRA funds.  Because the IRS mandates that all loans involving retirement funds must be non-recourse the only collateral that is needed is the property itself. The advantage of this being that derogatory personal credit, previous foreclosures, bankruptcies, etc, are completely irrelevant when trying to obtain a non-recourse loan. The lenders solely base their loan decisions on the property, it's cash flow potential, and minor reserve requirements within your IRA account. What does this mean exactly? Basically with a standard loan your bank will require you to personally guarantee the property. In the event of foreclosure you the borrower would then be personally liable. With a non-recourse loan involving your IRA funds the government wanted to make sure that in case a real estate investment soured the lender couldn't just come an wipe out your remaining IRA funds if the loan went into default. 

At Brooklyn Troy we have seen purchases of properties involving IRA funds increase by 80% in 2009 and 20% of those purchases involved our clients obtaining non-recourse loans. Here is an example of one of the transactions we recently completed.

The purchase price of the property was $130,000 and this particular client had just over $40,000 available for a rollover into a Self-Directed IRA. Initially our client thought that their only option was to purchase a property for no more than the $40k in their retirement account, which significantly limited their investment options in their area. The solution to the problem was obtaining a non-recourse loan. In this particular area the lender was willing to lend up to 70% loan to value which gave roughly $130,000 of purchasing power.   Already having several properties already picked out we simply analyzed each property and the potential ROI on each. After narrowing it down to two properties we were then able to make our move. Our client then made an offer on their first choice and actually were able to purchase the property for $125,000. After obtaining the loan for $87,500, and utilizing the $40,000 they had rolled over into a self directed IRA our client was able to purchase a property for $125,000. 

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If you are amongst the thousands of other Americans who have lost their jobs, still have their 401k with their old employer and have no idea what to do next, you are not alone. This market has been rough on everyone and now more than ever your next moves could very well determine your retirement. With that in mind your should roll over your 401k over and unless you absolutely need the money to support your family or stay alive you shouldn't just withdraw you fund from your old 401k. The tax implications alone aren't worth  it and trust me you will probably regret it later. So what are your options? Roll you money into a self-directed IRA where your options are almost limitless. With a self-directed IRA you can purchase real estate, stocks, bonds, cattle, cow shit, and even invest in a start up. How can you get this done? First you need to utilize a custodian to facilitate the 401k rollover into a self-directed IRA, a couple examples of these are Pensco Trust Company and Entrust. They will then coordinate with your previous 401k account holder and facilitate the transfer. From their it is time to find your next investments.

What most people aren't aware of is that they don't need to just invest their 401k in stocks, bonds, and mutual funds. There are so many more investment options that many just aren't aware of. There is no doubt that everyone rich, poor, or jobless has felt the ill effects of this economy but now more than ever is when you need to be taking control of your retirement and setting your retirement up for a more lucrative future. One example of this occurred with one of our clients at Brooklyn Troy, recently Laura lost her job and really had no idea what to do with her 401k account at her previous employer. She was distraught confused and sat on here hands for about 4 months just not wanting to deal with anything. She then not only shook off the minor set back but she got behind the wheel and started to take control of her investments. With the use of a self-directed IRA she was able to now diversify and strategically utilize her 401k to purchase 2 investment homes below the cost to build them. She now has a positive cash flow of $375 coming in every month into her self-directed IRA.

With a Self-Directed IRA the world is your oyster, and I mean literally. Where else can you have horrible credit, no job and still obtain a loan to purchase investment properties, or invest in a start up? I am not saying press the abort button entirely on your stock portfolio but now is the time to really make sure your retirement is diversified and not just within different stocks but within different industries. A self-directed IRA doesn't need to dominate your portfolio but it should definitely have a significant presence. Don't get bogged down with the jolted economy and your suddenly leveled retirement account, and start to take control of your future.  

Remember no one cares more about your retirement more than you and now is the time to act like it. Take control, diversify your portfolio and set up a self-directed IRA, Call Brooklyn Troy Today! Remember our investment strategy is simple, diversify.  

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There are a countless number of ways to utilize your 401k and diversify your portfolio. An option that most people don't often utilize are non-recourse loans for self-directed IRA's. The IRS requires a non-recourse loan for all real estate purchases that use leverage with a self-directed IRA, which means that if the loan were to default the lender can only take the property and can not come after the borrower or their IRA account. Non-recourse loans are more often used for investors who want to acquire property using their self-directed IRA but don't have enough capital to purchase the property, and don't want to use their hard earned IRA as collateral. Non-recourse loans allow clients to purchase and use the property and only the property as collateral for a loan. That means that credit/fico scores are often not used in the underwriting decision on these loans because the borrower is not the guarantor for the loan. This does however require the properties being lent on being cash flow positive.  Most of the time non recourse lenders will even lend up to 70% loan to value.

For example lets say investor Bob has $90k in his 401k IRA that he is looking to invest but really doesn't want to use it all on one property. While searching for the right investment he finds an amazing property that is going for $100k, that he knows is way under valued and can cash flow positively even in the current market.  Bob knows he can do a 401k rollover into a self-directed IRA for $30k and then obtain a non-recourse loan for $70k in order to complete the purchase. Assuming that the property is cash flow positive, which is extremely common in this market, Bob can now use the remaining funds within his IRA account and purchase several properties instead of just one. This not only diversifies his portfolio but reduces his exposure to any potential down turn in the market, or unexpected vacancy. Now with the $90k Bob had ready to purchase an investment property he now has 3 properties that are all cash flow positive and each month the rental checks go right back into his self-directed IRA account.

Here are some basic guidelines for IRA financing:

Requirements for IRA Debt Financing:

1.  Purchase transactions for investment properties only
   
2. IRA assets to be managed by a custodian in a self-directed IRA or SEP.
3. IRA assets must be verified for purchase and reserves. IRA reserve requirement may be up to 20% of the loan amount, to be available in the event of insufficient cash flow to pay operating expenses and mortgage payments.
4. No employment or income verification

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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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