Holding real estate within a Real Estate IRA is getting increasingly popular.
Where it was once the near exclusive province of dedicated, hard-core real estate investors who also have had years of experience investing in real estate outside of their retirement account, more and more individuals are turning to direct ownership of real estate within an IRA as part of a diverse retirement portfolio.
Naturally, many real estate agents here in North Carolina and across the country would love to tap into this market. But, of course, they need to make money, too. And the industry standard six percent commission, if you’re paying full boat, can really take a bite out of a real estate investor’s profit margin.
Should you work with a real estate agent for your Real Estate IRA? Here’s what to think about:
1.) Your time is valuable. If you value your time, that’s a powerful argument in favor of working with a real estate agent. Buying and selling properties, and ensuring the deeds are unencumbered and properly transferred, takes a tremendous amount of time and effort. There are dozens of emails and phone calls involved, trips to the courthouse and/or title insurance company, copies to make and file, duplicates to sign, escrow accounts to open, disclosures to make, etc. Every property bought and sold comes with a process that will take you a substantial amount of time to go through – if you were doing the whole thing yourself.
This is time you could possibly spend more productively in finding other promising investments, managing your own portfolio, running your own business, or just relaxing and enjoying your time with family and loved ones.
And that’s just the transaction itself. It doesn’t include all the time you’d spend looking at properties yourself and trying to find motivated sellers.
2.) You get to pick from more deals. If you’re working by yourself, you can only investigate the deals you find. But unless you’re working full-time in real estate, your visibility is going to be limited. Most people who aren’t doing it full time simply don’t have the network of eyes and ears in place.
But if you have a relationship with a real estate agent who knows your investment criteria and strategy, and is familiar with an investing approach to real estate (working with investors is a lot different than working with ordinary families simply looking for a dream home), that agent can bird-dog a lot of promising investments for you that you would otherwise miss. A good, veteran real estate agent is always comparing notes with other real estate professionals all over town. They all have a vested interest in finding you an acceptable investment property. So leverage that resource.
3.) They have errors and omissions insurance.
As much as we’d all like to hope every deal will come off perfectly, without a hitch, with no lost or misfiled paperwork, or math errors or disclosure mistakes or other snafus, the fact is that errors happen. Misunderstandings arise. North Carolina requires real estate agents to carry errors and omissions insurance, which is there not just to protect the agent but also to protect you, in case something goes wrong with the deal. This is an important safety net when it comes to real estate transactions, which are much more complex, with a lot more moving parts, than most trades in paper securities or other investments commonly held in IRAs.
If you are new to real estate investing and have not done it professionally, you may well benefit from working with a good real estate agent. The best ones justify their fees many times over.
The Case Against
Obviously, they have to make a living, and there is an expense to go with the benefits. If you’re working on narrow margins, it may not always be possible. A real estate agent will add about 6 percent to each transaction. Sometimes you can get a concession on commission to get a deal to go through, or trade percentage for deal flow, if you do a lot of transactions, in and out of your IRA.
[tweetthis]Should you work with a real estate agent #RealEstateIRA? Here’s what to think about…your time is valuable[/tweetthis]
However, sometimes that commission can make the difference between a profitable deal and an unprofitable deal. If that’s the case, move on – and try to focus on doing a better job buying! After all, the successful real estate investors will tell you – make money when you buy, not when you sell. And try to cut things too close. Build in a margin of safety in every transaction.
American IRA, LLC, based in Asheville and Charlotte, North Carolina, is a leading administrator of real estate IRAs and we work with successful investors from coast to coast. If you have an interest in real estate investing, we’d love to work with you. Call us at 866-7500-IRA (472), or visit us online at www.americanira.com.
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