Information for Developers and Realtors

In the months to come, realtors will be caught in the classic market squeeze of buyers trying to hammer down prices when there is "blood in the streets." At the same time owners wanting or perhaps needing to sell, will be reluctant to come down from last year's prices. Here's where the Omni- Asset IRA comes into play by helping you close more sales!

By showing the prospective buyer how to purchase the property with "pre-tax" dollars, you can help close the chasm between what your buyer feels the current market price is and the seller's asking price.

What's an IRA?

IRA is the acronym for " Individual Retirement Account." In the States just about everyone has one. In fact they total about $3.5 trillion dollars of assets. Many retirees have very large IRA accounts because they are able to make a tax free transfer (known as a "rollover") from their employer's corporate retirement plan to a personal "self directed" IRA. IRA accounts with $500,000 and above are very common. In fact, IRA accounts of $2,000,0000 are fairly common among professionals, such as lawyers and accountants.

An IRA is an investment account where "pre-tax" dollars are allowed to make investments, which can be bought and sold inside the account tax-free. This means that you can also sell real estate tax free if it's held in an Omni-Asset IRA account

However, when you withdraw money from the account, it's taxed just like your salary, at rates of up to 50%! If you're below age 60 and want to withdraw money it's even worse; you get hit with an additional 10% penalty.

Let's assume you have a prospect that wants to purchase a lot for $100,000 and their IRA account is where most of their liquid wealth is. Assuming a 40% tax rate, a person aged 55 would have to withdraw $200,000 (40% tax plus 10% penalty) to net the $100,000 after tax. A person aged 65 would have to withdraw "only" $180,000 to net the $100,000. The odds are that no matter how enticing the real estate is, the psychological barrier to paying $2 to net $1 will kill the deal.

But "what if" we could purchase the real estate "inside" the IRA account? The answer is obvious, it would only take $100,000, saving the other $80,000 or $100,000 to compound tax-free until needed.

As a real estate professional, do you think if you could show the buyer a way to "save" $100,000 in taxes, you might be able to bridge the bid/ask chasm?

Differences between Corporate Retirement Accounts and IRAs

Unlike corporate pension plans, IRAs are permitted by statute to invest in both 1) foreign investments and 2) real estate. While foreign real estate is permitted as an investment in an IRA, very few custodians have elected to pursue this option because they would prefer to offer only investments which their firm either captures a management fee or are easy to administer. So there is a big difference between what is permitted and what is commonly available on the market. With the Omni Asset IRA we have a solution to this problem.

This being said, there are a few caveats we need to mention. First and foremost, the real estate must be for investment purposes exclusively and not for "personal use." Second, there cannot be "self dealing." In other words, you cannot sell a piece of real estate you already own to your own IRA. As with most things, we can sometimes "structure around" obstacles, but be aware of the underlying rules.

The Omni Asset IRA Solution

With the Omni Asset IRA we've put together a solution, which encompasses the initial feasibility analysis as well as certain legal fees and administrative fees to help get the transaction completed. Some of these fees would be incurred anyway in the transaction, while others are unique to the Omni Asst IRA. Fees included in a typical transaction include:

1) Legal fees to set up a domestic LLC or IBC to hold the property 2) Annual appraisal fees for the property 3) Title insurance policy 4) Initial consultation with specialist ERISA/IRA attorneys 5) Custodian set up fees 6) Annual custodial and trustee fees 7) Updates on the IRA regs.

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