How to Buy Real Estate Overseas with a Self-Directed IRA

Landlords grow rich in their sleep without working, risking or economising.”  ~ John Stuart Mill

A majority of the investors would agree with the English philosopher, especially with the positive sentiment growing throughout the US real estate market. With a well-thought strategy, adding real estate to a retirement portfolio could beat wavering stock market returns over a long period of time.



If you’re somewhat skeptical about investing in real estate, especially considering the last recession, do understand that real estate always follows a cycle, including recessions and the afterward recovery.

One of our clients, Bill, had similar concerns about the stock market and what he did to overcome those was quite outstanding. He bought a mango farm in Panama using his self-directed IRA account. Surprised!

Well, as it turns out, the IRS allows investing in overseas real estate using your retirement account. In the case of Bill, he did a comprehensive online search for the mango farm, visited the property in person, and then added it to his retirement portfolio. Following this purchase, Bill later purchased another Neem tree farm in Brazil.

What separates Bill from an average retirement account holder is the fact that he was able to invest in a non-traditional investment, real estate, and that too at his own discretion. Unlike a traditional retirement plan, his investment choices were not confined to stocks, bonds, and mutual funds.

Curious about Self-Directed IRA Accounts?

A self-directed IRA is a retirement account that offers plan owners greater control over their investment choices. Unlike the regular IRA with a pre-defined set of investment options, the plan owner in a self-directed IRA can choose among different investment options, starting with:

1. Real estate
2. Mortgage notes/deeds
3. Personal lending
4. Precious metals
5. Private equity
6. Traditional stock and bond investments

That is not the end of the available investment options. All you have to ensure is that your investment follows the IRS’ guidelines for transactions done within a retirement account.

Tips for Buying Real Estate Overseas Using Self-Directed IRA

Bill is not our only client with a real estate portfolio comprising of overseas properties. Debra and Tim, two of our clients, purchased a property in Belize after the couple fell in love with the place during their multiple sailing trips.

A self-directed IRA offers the freedom to invest in an asset class that you understand. For an instance, a successful real estate investor would prefer to invest in real estate much like a banker who would seek an exposure in the equity markets. However, it does require some homework at your end and we are going to discuss some important steps that you should consider before investing with your 401k funds.

Establish a self-directed IRA in advance:
One of the first things you must do is to establish a self-directed IRA in advance. In case of Debra and Tim, they were able to seize an investment opportunity only because they already had a funded IRA in place. Further, it may take some extra time to rollover funds from your existing 401k account. Having a self-directed IRA in place will allow you act immediately when an opportunity presents itself.

Take legal advice before you establish an entity: 
One of the prerequisites of buying property within your retirement plan is to title it in the name of your Solo 401k trust or Self Directed IRA plan. While purchasing a property overseas, you need to understand the permissible local entity structures. For an instance, some countries/states may not recognize your 401k trust; hence, requiring you to establish a new entity. These issues could add to the net overhead costs and recurring fees will affect your profit margins.

Investments are made at arm’s length: 
While the IRS allows you to invest in real estate using your retirement funds, it does prohibit direct or even indirect use of the property. It means that you cannot live in the property yourself nor does any of your ascendants or descendants can do the same. Further, you cannot have any personal benefits from the property, which means any form of rental income should go back to the plan itself.

Prioritize your profit margins:
Since you cannot live in a property owned by your self-directed IRA account, always focus on the benefit of your own retirement savings. Choose a property that offers maximum returns for your investment. Keep in mind that you won’t be able to live in the property, so always focus on your return on investment instead.

Choose your IRA provider carefully: 
While establishing a self-directed IRA, make sure that the service provider offers features like checkbook control, which allows you to make an investment at your own discretion.
Further, there should not be a restriction on non-traditional investments, so check the available investment options up front.

The most important benefit of self-directed IRAs is the investment freedom they offer, and when coupled with a well-though financial strategy, it could help you generate lasting returns on your investments.

Credit- Reiclub