Buying Property in Rocky Point Mexico using your self-directed IRA

 by Carl Fisher

Trillions of dollars in IRA’s and 401(k)’s and the NYSE is at all time highs — where is one to invest? True diversification today includes portfolios beyond stocks, bonds, and mutual funds — portfolios that include global investments including real estate. As California and Florida — old time favorites — are suffering from a glut of properties,
falling prices, increased taxes, and outrageous hurricane insurance premiums, real estate investments outside the United States have become increasingly attractive.

Mexico offers a number of advantages for American retirement fund
investors. Mexican real estate of virtually all types it is still relatively
a bargain, and several markets — notably including Rocky Point —
have experienced very rapid appreciation of the value of a broad spectrum of properties. Many investors want a locale that is relatively easy to travel to from the United States, which is another factor that makes Mexico a great choice because many Americans simply like to go there. At Entrust CAMA we believe strongly in the maxim “Don’t own a property in an area you don’t want to visit.” Today, many financial planners and professional advisors in the United States and their clients realize that IRA’s and 401(k)’s can buy real estate, provide mortgages, loan money, and invest in private entities. However, the Mexican government does not recognize the IRA/401(k)/trust as a legal entity able to purchase property.

How does one proceed?
Raul O’Farrill, President of OTP Trust and Founding Partner of O’Farrill & Associates (two of Mexico’s most prestigious bi-national real estate services firms), informs us that the Mexican government does recognize other entities that allow the IRA’s investment in Mexico possible!. The acceptability of the United States companies and other entities — a highly sophisticated and adaptable ownership mechanism — is extremely good news for American IRA’s/401(k) owners considering Mexican real estate as an investment option, and
is especially attractive as California and Florida — old time favorites —
are suffering from a glut of properties, falling prices, increased taxes,
and outrageous hurricane insurance premiums.

Investors are using their IRA’s/401(k)’s to purchase shares in partnerships that subsequently purchase or already own property in Mexico. The types of properties being acquired using this mechanism include raw land, single family residences, town homes, condotels
fractional and multi-fractional holdings. It is still a common — and often profitable — practice to purchase pre-construction contracts and
flip them prior to ever taking title. O’Farrill further states that the IRA’s investments in Mexico has been a great opportunity for Americans looking for a profitable investment for their retirement that can be combined with other IRA’s to make a bigger and more profitable investment. This profit is passed through to the IRA or 401(k) which is either tax free in the case of the Roth, or tax deferred in the case of a traditional account. Of course, there are IRS rules and regulations that must be followed. The first thing that the potential IRA/ 401(k) investor should be aware of is that the owners cannot use the property personally, which is strictly prohibited by the IRS. The purchase must be made for investment purposes only. It would be considered a prohibited transaction should an IRA owner receive a present benefit from their IRA’s investment. Related parties of the IRA owner such as parents and children are also prohibited from using the property.
It is imperative for an IRA owner to select an administrator that is knowledgeable in the area of self-direction. We also strongly suggest that you choose an administrator familiar with foreign investments. When choosing an administrator/custodian you should look for one that offers continuing education credits for professionals such as CFP’s, CPA’s, attorneys, realtors etc. so that you can be assured of a smooth, seamless transaction with all parties involved. The company should have a knowledgeable and accessible staff that offers one-on-one service throughout your transaction process. As real estate transactions are often time-sensitive, the company needs to be readily
available with information and resources. At EntrustCAMA we differentiate ourselves from other administrators by giving personal, one-on-one services. I take calls on my mobile phone every day from clients who just have a question, or who want me to explain something to their CPA or Financial Planner. At EntrustCAMA we are also investors who know how investors feel and what they need. So how complicated is this process? Not very complicated at all, as the following outline of how these transactions are executed at our firm demonstrates:

1.Open a self-directed account with EntrustCAMA and transfer the required funds for the purchase from your existing administrator to EntrustCAMA.

2.Through an attorney, form the beste entity in the US and have the IRA purchase the shares of the LLC. The shares purchased will be vested “EntrustCAMA FBO (for the benefit of) your name IRA #12345.” (Note; it is good practice to have an attorney provide an opinion letter stating the entity is IRA/401(k) compatible.)

3.The entity now has the funds to purchase the Mexican property. Mr.
O’Farrill suggests using a one-stop firm familiar with corporate entities and United States law, Mexican law, IRA’s/401(k)’s, and that can provide services including deed preparation, title commitment, insurance, etc.

4.All expenses are paid from the entity; earnings including rent or sale proceeds are returned to the entity and then passed to the IRA thus providing excellent tax advantages. For added convenience, all expense and income checks can be processed by the administrator if the client prefers.

5. Taxes paid in Mexico will be credited in the United States because of the United States-Mexico treaty that prohibits double taxation.
The set-up fees for the self-directed IRA and LLC together range $400 to $700 — which obviously very rapidly pay for themselves when you
consider the tax savings in any good investment.

Carl Fischer is a Principal & Senior Selfdirected IRA Administrator at EntrustCAMA, a firm specializing in self-directed retirement fund investments with offices in Pennsylvania and New Jersey. For further information you can contact Carl Fischer at
cfischer@, through EntrustCAMA. com or 866 559 4430.
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