Probate Investing With Your Self-Directed Roth IRA
The Roth IRA is famous for its ability to earn compound interest tax-free. Less well known is the fact that an investor doesn’t have to have his IRA administered by a financial institution; they can administer their account themselves by selecting the “self-directed” option when the account is set up.
You Control the Account Money
With a self-directed IRA, one simply sets up an LLC which holds the account funds. One-hundred percent of the capital gains from investments and the profits from business transactions stay in the LLC account, with no taxes due on the profits.
A self-directed IRA-LLC can invest in real estate, tax liens, private businesses and more with the ease of writing a check and incurring no transaction or administrative fees. One investment avenue that is often overlooked is investing in probate assets. Let’s take a look at why this investment can yield remarkable results.
Probate is a Huge Market
When someone dies, their estate is put into probate: the estate executor adds up all the money, pays all the debts, and gives the heirs whatever is left over. Generally, assets must be sold to pay the debts: the house, land, stocks, jewelry, collections, artwork, etc. Currently, there are about 6 million unsettled probate cases in the US, with over three trillion dollars worth of assets available for sale (many for pennies on the dollar). There is about to be a tsunami of probate assets available for sale: the death rate in the US (eight per one thousand in 1995) is predicted to be twenty-six per once thousand by 2016. That’s a threefold increase, peaking in the next six years.
Little Competition for Probate Assets
Real estate foreclosure auctions are the usual focus of real estate investors. The auctions are widely advertised. The advertising draws lots of investors, and all are looking for a good deal. When the auction begins, the investors bid against each other, driving up the price of the real estate. There are a few great deals to be found at a foreclosure auction, but not many.
Probate assets, however, sit for months prior to being advertised for sale. The will has to be filed at the courthouse, creditors notified, and assets appraised; all this takes time. Astute probate investors spend a day a week at the county courthouse reviewing the wills that have been filed. The will tells them what assets are available, where they are located, and who the executor is. When the investor finds property of interest, he notifies the executor and makes an offer. No crowds; no competitive bidding. He’s beat the other investors “to the punch” by at least three months.
Using Your IRA Funds to Invest In Probate Assets
Because your probate funds are held in an LLC, accessing the funds is as simple as writing a check. When the investor buys rental real estate, he can write a check for the purchase and avoid the time delays and charges associated with getting a mortgage. Repair costs can be paid from the IRA funds. All the rental payments go back into the IRA-LLC account, and when the property is sold, all the profits go in as well.
For the adventurous investor not content to let a bank handle his money, probate investing is a low-competition, high-reward way to build your retirement account.
