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Partnering IRA Funds: An Alternative Way to Fund Your Real Estate Investment

Did you know you can partner with other funding sources to increase your investment potential? Self-directed IRAs are the only retirement arrangements that allow individual investors the freedom to pursue alternative investments, such as real estate. Investing in real estate with a self-directed IRA offers many benefits to those who are looking for creative ways to save for the future. Investors have complete control over their investment choices. Unlike other IRAs, you’re not limited to stock, bonds or mutual funds. Self-directed IRAs provide the opportunity to save money for the future on a tax-deferred or tax-free basis. In addition, an IRA is considered a separate entity that can conduct business with others. This is a common strategy used in real estate investments. The process is fairly simple, but be sure to adhere to IRA regulations to avoid engaging in any prohibited transactions.

How do I partner with others to purchase real estate using a self-directed IRA?

  1. Identify the partner you would like to invest with.
  2. Perform your due diligence and confirm that the investment fits your strategy.
  3. Combine your self-directed IRA fund with other funds to purchase the property.
  4. Your IRA will own a percentage of the property and must be stated on the title when the transaction is recorded.
  5. All income and expenses (on a proportionate basis) from the property flow in and out of your IRA and not your personal finances.
  6. If the property is sold, your IRA receives the portion of the proceeds proportionate to the percentage of ownership.

A self-directed IRA can partner with anyone at the time of initial purchase, but after the transaction is complete, the IRA cannot conduct any business with a disqualified person. Doing this could lead to significant tax penalties.

The following people are considered disqualified persons:

  • You
  • Your spouse
  • Your lineal ascendants and descendants, and their spouses
  • Any person providing plan-related services (custodians, advisors, fiduciaries, administrators)
  • Any entity (business, corporation, partnership) of which you own at least 50 percent, whether directly or indirectly

What are the ways in which I can take advantage of the partnering strategy to help me save for retirement?

  1. Partner With Another Investor
    Investors are on the lookout for new opportunities, and networking with like-minded individuals can be a great way to find an investment partner. Partnering with a fellow investor offers the potential to learn from each other, as well as disperse risk between two people.
  1. Partner With a Relative
    While you are not allowed to buy from/sell to relatives, as they are considered disqualified persons for these purposes, you do have the option of partnering with them to purchase a new investment. This can be a great way to save for retirement together with a loved one.
  1. Partner With Yourself
    It is possible to partner your self-directed IRA funds with your personal savings for the purchase of a new asset, such as a real estate property.
  1. Partner With Another Self-Directed IRA
    Partner your account funds with the funds in another IRA to maximize your purchasing power. Find another motivated retirement investor to explore your possibilities.
  1. Partner With a Group
    Sometimes partnering with one account, one investor or only yourself will not provide enough funding for the investment you are interested in. In this case, you can partner with a group! Partnering can be a great tool for retirement investing, but it is important that you understand how to utilize this strategy for success.

It’s Easy to Get Started
All you have to do to get started is open an account and fund it. There are three ways to fund your self-directed IRA: transfer or rollover an existing retirement account, such as an employer’s 401(k), into a self-directed IRA; or make regular, annual contributions to your account. Once your account has cash in it, you can start investing immediately! As you read in this article, you can partner with other investors until you have enough cash to invest in real estate on your own. Download our free report about partnering your self-directed IRA with real estate here to learn more.

Disclaimer: Before you invest in this business sector using your IRA, it is best to consult with your investment, legal and tax advisor. Entrust does not endorse or recommend any of these investments. Proper due diligence by you, the IRA holder, is recommended before entering into any transaction.

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A Closer Look at Online Home Value Estimates

The following information is provided by the Center for REALTOR® Development (CRD).

Consumers who are seriously in the home-buying and -selling market should be mindful of a variety of competing home price estimators. Solely relying on just one price estimate is likely to skew the views of what a particular property will actually transact for. When it comes to online home value estimates, however, the No. 1 caveat for consumers is that these estimates are not a substitute for formal appraisals, comparative market analyses and the in-depth expertise of real estate professionals. Nonetheless, it is important to know the different sources of automated valuation models (or AVMs) and home value estimates available online, so that you can help clients and potential clients understand these estimates in their proper context.

How are online home value estimates created? The prevalence of technology offers more access to a broad spectrum of information on the internet. In real estate, access to property details and values is easier due partly to low-cost immense computing power. AVMs generate a price for a property based on computer algorithms and calculations that take different sets of property data and look for patterns and relationships between property value and the input data. There are websites that will have a home value estimate available by just searching an address, while others may provide an estimate only upon request.

The most popular sources of home value estimates online are those that use AVMs. These estimates have varying levels of accuracies. The main sources of AVM estimates are:

Realtors Property Resource® (RPR®) – RPR® has two home value estimates: their AVM estimate and the Realtors Valuation Model® (RVM®) estimate. The difference between the two is that RVM uses the same data as the AVM plus Multiple Listing Service (MLS) data. Both AVM and RVM show the accuracy level of the estimate by giving estimate ranges and confidence scores. This resource is available for REALTORS® only and allows a significant amount of expert customization, making it a useful tool for members, especially when working with well-researched clients.

realtor.com® – Realtor.com uses tax assessment records, recent sale prices of comparable properties and other factors to estimate home values. This estimate is free and publicly available.

Redfin – Redfin is a web-based real estate brokerage that gives the Redfin estimate for the property, which is based on market, neighborhood and home-specific data, including MLS data on recently sold homes. Redfin cites that their estimates for properties currently on the market are more accurate than estimates for off-market properties. This estimate is free and publicly available.

HouseCanary – HouseCanary has two main services: valuations and forecasting. Their estimates use property-level data from public records and the MLS. Their accuracy will vary across markets depending on the availability of data. This estimate is available with subscription to their services.

Homes.com – Homes.com’s estimate mainly uses public records. They test and benchmark the accuracy of their estimates. This estimate is free and publicly available.

Zillow and Trulia – Zillow has the Zestimate, which is their home value estimate for properties and is computed using public and user-submitted data. Their estimates have different accuracy levels depending on the data of the property and location. This estimate is free and publicly available. The estimate from Trulia is likely to be very similar to Zillow’s Zestimate, since it is part of the same Zillow Group.

Eppraisal.com – Eppraisal.com uses property records, home sales data and local market data for their estimates. Their accuracy depends on the accuracy and completeness of public data. This estimate is free and publicly available.

There are also websites that provide home value estimates by request only, or estimates using user inputs, such as HomeValues.com, SmartAlto.com, ValuemyHouse.com and ZipRealty.com, among others. Some banking and financial institutions, such as Chase Bank, Bank of America, the Federal Housing Finance Agency, Fifth Third Bank and PennyMac, also provide estimates to accompany their other financial services.

Some real estate agents and brokerages also share their estimators through their websites. Again, it is important to know that these estimates have varying levels of accuracies. These sites may or may not use AVMs, but can be another source of property and home value data that anyone can access. Additionally, there are also data companies, such as ATTOM Data Solutions and CoreLogic, that market proprietary AVMs.

As technologies advance and more data becomes available, the number of sites that provide home value estimates may grow. With the knowledge of where to find home value estimates online, it is important to note that these home value estimates are not interchangeable with formal appraisals and comparative market analyses, and they cannot be used as a basis for a loan. Most of these sites, if not all, reiterate the importance of consulting the expertise of real estate professionals to receive an in-depth and in-person analysis of the property and the local market.

This article was adapted from a post on NAR’s Economists’ Outlook blog on July 3, 2018.

Karen Belita, data scientist, focuses her research on discovering insights using large publicly available datasets. Belita has a Bachelor’s degree in Finance from George Mason University and a Certificate in Data Science from Georgetown University.

For more education about comps, valuation and pricing strategy, check out this month’s featured online certification course at the Center for REALTOR® Development, Pricing Strategies: Mastering the CMA, which is the educational requirement for NAR’s Pricing Strategy Advisor (PSA) certification, and is on sale this entire month of July at 25% off its regular price.

In addition, Episode 001: Pricing Strategies in the Market, of the Center for REALTOR® Development’s monthly podcast, discusses pricing and valuation and is available for free on most podcast channels. To listen or subscribe, visit www.crdpodcast.com.

For more information, please visit RISMedia’s online learning portal from NAR’s Center for REALTOR® Development (CRD) and the Learning Library. Here, real estate professionals can sign up for online professional development courses, industry designations, certifications, CE credits, Code of Ethics programs and more. NAR’s CRD also offers monthly specials and important education updates. New users will need to register for an account.

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Buyers: Challenged by Student Debt? Consider Down Payment Programs

Student loan debt is one of the biggest factors impacting millennials’ ability to purchase a home. According to the National Association of REALTORS® (NAR), 80 percent of millennials do not own a home, and, of that, 83 percent say student loan debt is impacting their ability to buy. Millennials expect to be delayed from home-buying for a median of seven years, the NAR research shows.

There are alternatives, however, that millennials may not know about. In fact, according to a 2016 ATTOM Data Solutions survey, few buyers and real estate agents know about the close to 2,500—mostly local—down payment assistance programs. Across the 513 counties surveyed in the ATTOM Data Solutions report, buyers that used these programs saved, on average, $17,766 over the life of their loan.

From offerings that benefit first-time homebuyers to options for refinancing costly student loan interest rates, it’s important that today’s homebuyer is aware of all the viable options for purchasing a home.

What’s Out There?
For consumers who are having trouble saving for a large enough down payment, there are plenty of options that offer grants or down payment assistance. The National Homebuyers Fund (NHF), for example, has multi-state Down Payment Assistance (DPA) programs that offer closing assistance or down payment grants for up to 5 percent of the loan amount.

The U.S. Department of Agriculture (USDA) also has low- and no-down payment options via its Single Family Housing Guaranteed Loan Program, which assists lenders in offering low- and moderate-income households with purchasing opportunities in rural areas, for which closing costs and other related expenses can be rolled into the loan.

Additionally, there are more localized options available on a state-by-state basis. Here are a few examples:

  • Baltimore, Md./Washington, D.C. – The Maryland Mortgage Program offers a discounted mortgage rate and up to $5,000 in down payment assistance when consumers purchase in a sustainable community.
  • Ohio – Grants for Grads offers reduced-rate mortgages for first-time homebuyers who’ve earned their associate, bachelor, master or doctorate degrees within the last four years.
  • Rhode Island – The First Down Program allows first-time homebuyers to purchase a one- to four-family home or condominium with down payment assistance of $7,500, forgivable after five years of owning the home as a primary residence.

More and more companies are introducing homebuyer assistance programs to tackle the student loan debt challenge that many of today’s buyers are facing, as well; however, buyers and agents should first consult a financial expert before participating in or recommending these programs. For example, the student loan cash-out refinance that multiple lenders offer, which allows homebuyers to use their equity to pay off high-interest student loans, may not make as much financial sense with the introduction of the new tax bill. as home equity financing is no longer tax-deductible.

With other incentive programs, such as the Eagle Home Mortgage’s Student Loan Debt Mortgage Program, homeowners can pay off outstanding student loan debt (up to $13,000 for this specific program) by redirecting 3 percent of their purchase price to student debt payoff when buying a new home from the home builder. Buyers should carefully assess whether these programs are financially worthwhile.

These are just a sampling of the available down payment assistance and grant programs that can help consumers with high student loan debt achieve their homeownership dream. It’s imperative that real estate agents research these offerings in order to assist consumers who believe homeownership is still out of reach.

Dominguez_Liz_60x60_4cLiz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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5 Tips to Help You Find a Starter Home

(TNS)—First-time homebuyers might well wonder: Where are all the starter houses? They’re right to ask, because starter homes are becoming increasingly scarce in many housing markets. Housing inventory is low and home prices are soaring.

What’s a first-time buyer to do?

Here are five tips for finding a starter home:

Be realistic about today’s market. Sellers clearly have an advantage in the current market. Inventory is low, which keeps pushing home prices to record levels, according to the National Association of REALTORS® (NAR). Buyer competition is fierce, as homes in the lower price ranges fly off the market.

Unfortunately, that leaves many first-time buyers––especially those with tight budgets––on the sidelines. If you’re searching for your first home, be realistic about what you can afford and what amenities come with that budget. (Hint: You may have to forgo top-of-the-line appliances and shiny quartz countertops.)

A starter home isn’t necessarily your forever home. Be prepared to make some compromises to get your foot in the homeownership door.

Adjust your wish list. Buyers shopping for their first home need to be open-minded about the location, size and condition of the home they want to buy, says Tim Deihl, associate broker with Gibson Sotheby’s International Realty in Boston.

For many buyers, a classic starter home, which traditionally doesn’t have many amenities, is more achievable.

“If your first home is the place you’re going to have your family, maybe build an addition and stay there forever; that’s one set of criteria. If your starter home will be a financial launch pad into a larger, better home, that’s a different approach,” Deihl says.

Another strategy: Look for an older home in a well-established neighborhood. Resales typically cost less than brand-new homes, says Bradley Hunter, chief economist for HomeAdvisor.com, a home improvement matching service based in Golden, Colo.

Older homes typically need more maintenance and repairs, which offset some of the savings; however, Hunter says, buyers who choose a used home might be able to do repairs and renovations over time, pacing themselves to make the cost manageable.

Hire the right real estate agent. When you’re up against stiff competition, working with an experienced real estate agent who knows the local market is key.

Look for an agent who specializes in the neighborhoods you’re interested in. Savvy agents should be able to answer your questions about neighborhood amenities, local schools and nearby home values.

A good agent shines when it comes to negotiating the deal and writing a strong offer letter backed with solid data. Your agent can suggest certain strategies to win in a competitive market, such as limiting contingencies or writing a personal letter.

Ask friends and relatives to recommend agents they have used and were happy with. Also, interview two or three different agents. Find out how they prefer to communicate with clients and how often you’ll get updates. Finally, research the agents you’re considering online to see what past clients have said about their work.

Rethink location. If you’re thinking about starting a family in the future, don’t focus too much on your home’s location, size and school district just yet, Deihl says. Resetting those parameters can make it easier to buy a first home.

“Buyers may be in a position where schools won’t impact them for six or seven years,” Deihl says. “That’s a good opportunity to buy in the city, make some money and roll that into a community where they want to be longer-term with the kids.”

Buyers who sacrifice location for affordability can find themselves in a neighborhood far from major job centers with a long daily commute and expensive transportation costs. Sometimes that trade-off makes sense, but not always, says Cathy Coneway, a broker for Stanberry & Associates REALTORS® in Austin, Texas.

“You have to look at how much you make and how much you can afford to spend for gas,” Coneway says. “You might actually be better off buying a house that’s closer to town so you have more cash flow for property taxes, insurance and living expenses.”

Make a strong offer. When a well-priced starter house comes on the market, the quest to buy it can be “super competitive,” Deihl says.

One way to strengthen an offer is to present a loan preapproval that includes everything but a title search, appraisal and hazard insurance, says Jay Dacey, a mortgage broker at Metropolitan Financial Mortgage Co. in Minneapolis.

A strategic phone call might help, too.

“We call the listing agent and say, ‘Mr. and Mrs. Jones submitted an offer on your property. Not only are they preapproved, but they’ve gone through the underwriting approval process with our bank,’” Dacey says. “That makes the offer stronger.”

Other ways to entice sellers: Offer above asking price (if you can afford to), keep repair requests to a minimum, make a larger down payment or give them more time to move after closing.

© 2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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5 Tips for Buying a Foreclosed Home

(TNS)—Buying a foreclosed home is not like the typical home purchase.

In many cases, only one real estate agent is involved.

The seller wants a preapproval letter from a lender before accepting an offer.

There is little, if any, room for negotiation.

The home is sold as-is, and it’s up to the buyer to pay for repairs.

On the upside, most bank-owned homes are vacant, which can speed up the process of moving in.

“Buying a foreclosure is definitely a bit of a grind. It’s not easy,” says Robert Jensen, broker and president of the Rob Jensen Co. in Las Vegas. “You’re getting fantastic pricing, but sometimes it takes going through a lot of houses and writing a lot of offers to get the home you want.”

Find a real estate broker and a lender.
The first two steps for buying a foreclosure should be taken at the same time. While you’re looking for a real estate broker who works directly with banks that own foreclosed homes, get a preapproval letter from a lender.

Elaine Zimmerman, a real estate investor and author, recommends that shoppers first visit any site with a database of foreclosed homes. You also could look at a local real estate website that lets you filter the results to see only foreclosures.

You might find the acronym REO, which means “real estate owned.” This signifies that the property has been foreclosed on and the lender now owns it and is selling it.

Get a broker on your side.
The goal of combing through foreclosure listings is not to find a house; it’s to find an agent. Banks usually hire real estate brokers to handle their REO properties. In many cases, the buyer works directly with the bank’s broker instead of using a buyer’s agent. That way, the commission doesn’t have to be split between two brokers.

“A lot of these REALTORS® have a long-term relationship with these banks, and they know of listings that haven’t even come on the list yet,” Zimmerman says. “Call them about the listings that you’re interested in, but also ask them about listings that may be coming up, because sometimes it may take a day or two or even a week before a listing actually comes onto the database.”

Get a preapproval letter.
Unless you plan to pay cash, you’ll need a recent preapproval letter from a lender. The letter will detail how much money you can borrow, based on the lender’s assessment of your credit score and income.

“The problem is, buyers want to find the house first, and then they think they’ll work out the financing,” Jensen says. “But the problem is, the really good deals on these bank-owned, they go quick—and the buyer doesn’t necessarily have time to try to work out the financing afterward. They need to work that out first.”

Zimmerman says some first-time buyers make the mistake of assuming that the bank selling the home will also finance the mortgage as part of the deal. “Don’t expect to get financing from the bank that foreclosed on it,” she says. “That’s a totally separate transaction, and they view it that way. The people in the (bank’s) REO department are not loan officers. They are getting rid of bad assets.”

Look at comps before making an offer.
There’s no rule of thumb on what the bank’s bottom line is on price. Just as with any other real estate purchase, you have to look at the recent sales prices of comparable properties, or “comps.”

“You really have to look at the comps in today’s current market conditions and write a competitive offer based on that,” says Jensen. “Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours.

“Sometimes it’s priced too high, and you can come in lower. A lot of times, buyers will come to me and say, ‘We want to write offers for half price.’ It just doesn’t work that way.”

Bid the higher price if homes are selling quickly.
Keep in mind that foreclosed houses generally are sold as-is. That means that you shouldn’t expect to get a discount to compensate for repairs.

Jensen says: “Let’s say the house is listed for $200,000, all the comps are $200,000, and so the client comes in and says, ‘Hey, look, I want to buy this house but I’ve got to do paint, carpet and fix some mold damage, so I want to take $15,000 off the price.’ You know what? All the other ones were in the same condition, and they sold for $200,000.”

Jensen further advises finding out how quickly comparable houses are selling. With foreclosures, a 3,500-square-foot house with a pool in a gated community might sell within days or hours, but more modest homes might sit on the market for weeks, or vice versa, depending on market conditions.

If the foreclosed homes you’re looking at are selling swiftly, “the best advice on a bank-owned property is to come in at your highest and best, unless the property has been sitting on the market forever with no activity,” Jensen says.

“If you’re going to be upset because you would have gone $5,000 more but you lost the property, just bid the higher price in the first place.”

Find tradespeople who can assess and repair damage.
Because repairs are almost inevitable with foreclosed houses, Jensen and Zimmerman recommend getting to know tradespeople who can assess and repair damage from pests, mold and leaks. Zimmerman says you should assume that the air conditioning needs to be fixed, and possibly the heating system, too.

It all sounds daunting—but at least you don’t have to wait for the owner to move out of the house.

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Ask the Expert: What Do Buyers and Sellers Need to Be Aware of This Summer?

Steward_Dan_132pxToday’s Ask the Expert column features Dan Steward, president of Pillar To Post Home Inspectors.

Q: As summer approaches, what do buyers and sellers need to be aware of?

A: With the summer season right around the corner, here are a few critical components that can’t be overlooked by buyers and sellers alike.

  • Insulation is often lacking in a home’s attic, leading to excessive heat loss or gain and high energy bills. Consult a professional to determine if more insulation should be added.
  • Soot builds up in chimneys quickly, which can lead to carbon monoxide poisoning, in addition to posing a fire hazard. A certified chimney sweep should be hired to routinely clean your chimney to prevent build-up.
  • Deterioration and rot can remove caulk and grout around a bathtub, which can cause leaks and lead to extensive damage to the surrounding walls. You can determine if there’s insufficient grout by checking between tiled enclosures for voids. Caulk integrity can be determined by gently pressing and checking for any sponginess, a sign of weakened integrity.
  • A loose toilet seat, while uncomfortable, may be a sign of a bigger issue. In fact, a seat that rocks could indicate that the seal at the base has failed, which can allow water to leak to the floor below, causing significant damage. If the seat feels loose, have the toilet inspected by a professional—and have the seal replaced if necessary.
  • The electrical outlets in our homes are sometimes incapable of handling the large number of gadgets we now throw at them. To prevent problems from overloaded outlets, consult a certified electrician to install additional outlets to handle the increased load.
  • Plants too close to a home’s siding can cause moisture damage and premature wear. Make sure to keep vegetation in control by keeping plants neat and trim.
  • Downspouts often release against walls, which can cause the foundation to deteriorate, causing water to enter the basement. Redirect these downspouts away from the structure.
  • Like chimneys, oven or range filters can become clogged, posing a major fire hazard. Check filters for built-up grease, and consult a professional to check the connections to determine if the model needs exterior exhaust.
  • Seals around kitchen and bathroom sink fixtures can become loose, leading to water damage in cabinets below. Visually examine seals and test them to see if they feel loose. If so, repair or replace them immediately.
  • Roofs don’t last forever. When purchasing a home, consult a professional home inspector to determine both the age and condition of the roof. Failure to do so may result in a significant amount of expensive damage to the home.

For more information, please visit www.pillartopost.com.

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