“Kathleen, as a U.S. citizen, I’ve heard it’s very cumbersome and not worth the hassle to own foreign real estate in an IRA. Is this false, and, if so, can you please provide a facilitator or point of contact to assist in this process?”
–Jeff F., United States
Resident global property investing expert Lief Simon responds:
Owning real estate, foreign or U.S., in your IRA takes some effort and comes with some downsides. First, you have to find an IRA custodian that allows for foreign real estate investments or an LLC investment. That’s not difficult, but your current financial institution custodian likely won’t qualify, meaning you’ll probably have to change custodians.
That new custodian will cost more than your free IRA at Merrill Lynch.
If you’re planning to use your IRA to make more than one investment offshore, then I’d say that that the effort and expense of setting up an offshore LLC makes sense. Establish the LLC, have your IRA invest in it, and then use the LLC to make the individual investments you’re interested in.
The LLC will have both an up-front cost and ongoing fees that will be in addition to your custodian fees. So you have to make sure you have enough to invest to make the fees and costs worth it.
One downside to investing your IRA in real estate is the illiquidity of the asset. When you turn 70 1/2, you’ll be required to take distributions from the IRA. If you don’t have enough liquid assets or cash flow from rental income associated with the real estate your IRA has invested in, then you could be forced to take an entire piece of property as a forced distribution. This would create a tax event that you’d probably rather avoid.
The effort to find an offshore real estate investment is the same whether you’re using IRA funds or any other capital to make the buy.
For help using your IRA funds to purchase property overseas,
you can get in touch here.
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