Using Your IRA to Buy Foreclosures | Real Estate
JACKSONVILLE, Fla. -- The Multiple Listing Service shows there are 304 foreclosed properties for sale in the Jacksonville area. Some big investors are snapping up those deals and then renting the homes. But smaller, cash-strapped investors can get a piece of the action too by tapping their retirement accounts and becoming landlords.
Ken and Carolyn Godwin are retiring this year. They want to diversify their investments, so with rental demand surging they took advantage of a deal on a foreclosed property. "We had a two legged stool with stocks and bonds being our only option in the 401k. Now we have a third leg and we feel stable," says Ken Godwin.
The Godwin's purchased a Westside rental home for $55,000 with money they rolled over from Ken's 401k and into a self-directed IRA. There are only a handful of companies in the country that handle these types of rollovers. Companies like Pensco, IRA Resources, Sterling Trust, Guidant Financial Entrust and Fiserv offer these IRA's. "Before doing an investment like this you have to find what's called a self-directed IRA custodian," says Jacksonville Wealth Builders CEO Gregg Cohen.
The Godwin's purchased the home and one other through Jacksonville Wealth Builders. Cohen says his company buys foreclosed homes in blue collar neighborhoods, fixes them up, rents them out, sells the homes to investors, like the Godwin's, then manages the property for them. "Slightly below middle class is where we focus. So on a scale of one to ten range, we mainly focus on the fours. That's where you're going to find the highest cash flow opportunities and you're not going to have the headaches that comes with the lower ranges," says Cohen.
Cohen says investors can expect about an 8-10% return on their money not including appreciation or tax advantages. All the rental income goes back into the IRA while money to pay taxes, insurance and repairs comes out of it. Cohen says Jacksonville is a unique rental market. "What you find in Jacksonville is that prices are a lot lower than the national average but the really great thing and the reason why we have such strong real estate investments is because rental demand is so high."
The Godwin's say aren't done yet buying rental homes. I'd like to buy about a half dozen more," says Carolyn. The Godwin's are enjoying cash flow from the properties now but say their children and grandchildren will ultimately benefit from what they are investing in today.
Cohen says Jacksonville Wealth Builders has 144 clients in 24 states and 7 countries. Cohen anticipates his company will sell more than 200 homes to investors this year.