A Creative Way to Finance Your Cabo Purchase

May 17 2016

With a fluctuating stock market and faltering money market returns, many Americans have discovered an innovative method to move their retirement account investment money to a place where it can do some good.

Specifically…..Cabo real estate!! Real property can be either purchased or sold for your benefit using your qualified retirement plan and/or IRA funds.  When purchased, these properties become assets of your plan, or account.  These accounts are called Self Directed IRA’s (SDIRA’s)  Therefore you have no early withdraw penalties and you’re not subject to US income taxes.  You can even buy furniture through this account.  In a Cabo real estate market where there are few options to finance a purchase and you’re having to pay cash to get the good deals out there the SDIRA is a great vehicle to purchase real estate.   

Another plus to this type of investment is that the restrictions are relatively few.  They are:

1.  The IRS code does not specify which types are permitted, however, typically you can purchase investment property such as single or multi-family dwellings, apartments, condos, commercial buildings, raw land, VACATION PROPERTY, mobile homes etc.

You can also lend money against these types of property.

2. You cannot buy a property, or invest in a secured loan that involves yourself, a son, a daughter, parent, or other disqualified party- such as a fiduciary or your sole proprietorship.  However, this rule does not apply to siblings or any third party.  You can buy a house and rent it to your sister or brother, or an unrelated third party.  If you rent the property to any qualified party, all income and expenses must first flow back to your IRA.  If you decide to use some of the income produced, such distributions will always be subject to taxes, and possible penalties(if they are received prior to age 59 ½)

3. You may not personally own property which you intend to purchase with plan funds and you must ensure that your intended purchase is not a prohibited transaction.

4. It must be for investment purposes only.

5. Neither you, your spouse, nor your family members (other than siblings) may have owned the property prior to its purchase by your plan.

6. Neither you nor your family members (other than siblings) may live in or lease the property while it’s in your plan.

7. Your business may not lease or be located in or on any part of the property.

The steps are fairly straightforward and basically require the Buyer to setup a US LLC.  It is that LLC that will be the account holder of the self directed IRA.  Likewise, the same LLC will be the beneficiary of the fideicomiso, real estate trust, here in Cabo when purchasing a property.   It is advisable that the supervision of an attorney both stateside and here in Cabo is in place.  Using a Cabo real estate agent who has done these transactions before will ensure a smooth and successful transaction. 

If you are tired of losing money in the stock market or of watching your IRA account’s value increase by only a modest yearly fraction….there is a solution.

Maybe now is the time to explore potentially higher yielding Cabo real estate investments that you self-direct and can control.