Self-Direct Your IRA to Invest in Baja Real Estate


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IRAs, Roth IRAs, SEP IRAs, and 401Ks are all good for buying Baja real estate!

When looking at your retirement portfolio, most people don’t think about investing in Baja real estate.  It is traditional to invest in stocks, bonds, and mutual funds.  In fact, most big name brokerages only offer such investments.  The closest they may get to helping you invest in real estate is to assist you in purchasing shares of a real estate investment trust (REIT), putting your retirement dollars in the hands of another, just like many of us stock market losers have been doing for years.

Given IRS Publication 590, you can use your IRA or 401K to invest in international real estate, such as Baja California. It is 100% legal, and has been since 1974!  This type of international investing has been successfully practiced among many who are not even familiar with IRS publication 590!  Some people just aren’t happy limiting their retirement investments to just stocks, bonds and mutual funds.

If you were to ask your broker about investing in international real estate with your IRA or 401K, they might ask you “why would you want to do that?”  This simply means that they are not well-educated on the subject.  Since they don’t get paid unless you use their consulting services or buy stocks or funds through them, they have no incentive to learn about investing in international real estate using IRAs or 401Ks.

Investing in international real estate using your IRA or 401K is not a tax loop hole.  This is sound retirement account investing.  Publication 590 clearly states that you cannot invest in life insurance, certain S corporations, or collectibles (artwork, baseball cards, antiques, etc.), but you can invest in Baja real estate.

Here is a synopsis of how you can use your 401K or IRA funds to invest in Baja real estate. 

First, transfer funds from your common retirement account and broker or custodian, to a custodian who is not restricted to the typical investment products of stocks, bonds, and mutual funds, but also allows for self-directed retirement accounts that include real estate.  This transfer may take about a month.

Next, you will open a limited liability company (LLC) in the state of your choice.  Your operating agreement, the document that governs your business, will confirm that you will be in compliance with Publication 590.  Open up a bank account for your LLC.  You may use an internet bank such as Netbank. Expect to spend about $700 to $1500 depending on how you go about getting these steps done.

The third step is to use funds from your new self-directed retirement account to buy units from the LLC.  A unit to a LLC is slightly comparable to what a share is to a company.  Simply put, a check is going to be written from your self-directed retirement account to fund the LLC.  Your self-directed retirement account will now own the LLC. Many IRA investors call this an IRA LLC.  This is not an official term, but we will use it here.

Next, you can go buy land, a condo, or a house with the intent of using a fideicomiso, in which the beneficiary of the fideicomiso is your IRA LLC.

If you were to buy a vacation rental, net profits from the rental would go right into the LLC, and then be transferred to your self-directed IRA account.  If you sell the property, all profits go to the LLC, and then back into your self-directed IRA account.  If you decide to use the property for your own personal enjoyment when you retire, then you can take the property as a distribution after reaching the eligible age of 55.

Many tax accountants and lawyers are familiar with this process.  Get to know them in order to make them part of your team.  Make sure that 100% of the people assisting you with your transactions are familiar with 401K and IRA international real estate investing.

Remember, this is tax free on the USA side, and very inexpensive on the Baja California, Mexico side.

By Mario Restrepo