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The Return of the Real Estate Flipper!!!

There was nothing better than being a Real Estate Flipper in 2004 and 2005.The Flippers would buy a piece of property today and literally sell it for a 10, 20, 30% return in a matter of days, weeks or months.These returns were unheard of in market history.We should have all known.The interesting thing was, the Flippers were not a small group, there were thousands of these “investors” involved in transactions throughout the country.

Unfortunately, if you were holding a property around mid 2006, your pumpkin came due and you turned in to a Flopper.Floppers got upside down on properties.  Also many Floppers did not have the financial means to carry the properties resulting in the enormous foreclosure numbers we have today.

But do not despair; the Flippers are back in the 2009 real estate market.Real Estate is making history again, this time for large price decrease.Cookie cutter real estate developments throughout Florida have seen price decrease as much as 60%.Markets in Las Vegas, Chicago, and California have seen similar price decrease.It is nescessary to note prices in metro areas that actually produce jobs have not seen the huge price decrease as have the speculative or vacation areas.

So here they come in full force, the Flippers are making their come back.With depressed prices, investors are buying property from sellers that must get out at bargain prices.The savvy investor can find tremendous deals. The nice part is that these properties have solid fundamentals that make investing a good move at these low prices.Cash flows on rentals make sense again and investment ratios are inline to make decent returns.With appreciation on the horizon, we see clients buying real estate in their Self Directed IRA.Assets inside a Self Directed IRA are tax free when sold guaranteeing additional funds are available for the next investment, not paid away as taxes.

At the Lee County Court house in Florida, on average there are 10 foreclosure specialists on any given day, that number the last month has jumped to over a 100 investors bidding on properties.The typical strategy of the foreclosure specialist was to buy the property so low and then quickly put it on the market for a price that was usually the lowest in a neighborhood to guarantee a quick sale.There have been so many foreclosures flooding the courthouse that smart buyers have figured out the deals. The effect is that now that demand is up, prices are not at rock bottom levels the are increasing because of the competition at the foreclosure auction. We are starting to see the signs of prices leveling off and actually increasing because of the demand.

Flippers need to be smarter than last time.The highest price was the only price that was accepted for a Flipper to sell in 2005, now they are notching their price just below the market to guarantee a quick sale.Flippers will always be around; this time there will be a lot less.In parting, next time my barber or waiter tells me what they are flipping real estate; I will run home and make sure I that I am selling.

Dave Owens is a CPA that specializes in Self-Directed IRAs and 1031 exchanges.Please feel free to call him at 239-333-1031 or email him at owens@1031company.com.

Guess who is making a comeback.  Other popular investments in Self-Dircted IRAs are private notes, LLCs, bank stock, managed commodities and even Gold.  Real Estate is flexing its muscle and growing in popularity daily.  The real estate boom of 2005 has cause maybe one of the greatest real estate depressions of all time. Real Estate is very affordable and now it is a great investment again.

Prices are dropping to levels not seen in 10 years.  In Southwest Florida, Gulf access canal homes, built in 2005, are selling for less than $150,000 and duplexes in Cape Coral are selling for $40,000.  These are great investment opportunities.

Add the stock market crash of the Fall 2008, investors are turning to Self-Directed IRAs and purchasing real estate to diversify and solidify their investments.

How does one get started purchasing real estate in an IRA?  Opening a Self-Directed IRA is easy.  Download the forms at www.entrustfreedom.com.  The application is three pages long.  Now that the account is open, the account must be funded.  Typically the most popular way to fund an IRA account is to transfer from an existing IRA account.  This transfer can take about 2 weeks. There are ways to speed this up if up if necessary. The other two ways fund an account is an annual contribution, or a rollover from a 401k. 

Now that the account is funded, you will need to find the investment.  It is important to know with Self-Directed Accounts, to make money, you must find investments, the administrator cannot sell you investments.  If you are working with a realtor, the contract for your real estate will be titled in the name of your Administrator, with our company it is Entrust Freedom for the benefit of John Doe IRA #12345 for example.  After the contract is accepted, Entrust will work with the closing agent to purchase the asset in the name of your retirement account.  Title will be the same as the contract.

All income and expenses associated with the real estate now belong to the IRA.  If rent is recieved it must be deposted to the IRA account.  All expenses must be paid by the IRA account, for example property taxes, and insurance.

The neat thing about Self Directed IRAs, All Real Estate can qualify to be purchased in an IRA.  The most common examples are rental properties including houses and condominiums, vacant land, commercial land, fixer uppers, and foreign properties.    If you dont have enough money in your account you can also purchase a percentage of the real estate as tenants in common with a partner purchasing the difference.

This is just a brief overview of Real Estate IRAs.  Please feel free to email me at mail@entrustfreedom.com or call me at 239.333.1031.  Have a great day!