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Real estate investors seeking a leg up on other investors in a competitive market may find an advantage from an unlikely source.
We’re not talking about direct mail or marketing hacks, “proven systems” from a guru, or any magic negotiating methods.
So what is it?
3 Advantages Self-Directed IRAs Can Provide Real Estate Investors
Investors are finding they can beat the competition and win at auction or closing simply by using their retirement funds.
1. All-cash offers are king
As most real estate investors know, making an all-cash offer is often preferred. Real estate investors, and specifically sellers, like cash offers for a few reasons:
- It allows the seller to offload the property with a fast and easy exit strategy.
- It’s a sure thing. There are no concerns they will be paid in full.
- It allows them to easily move into another investment.
- It typically allows for a more seamless, less cumbersome sale.
- It doesn’t require an extensive qualification process for credit history and other processes.
One of the benefits of an IRA is the ability to use cash in the account to purchase the property. Josh, an Equity Trust client from Indiana, discovered this on a raw land investment he made with his IRA.
After searching for raw land opportunities and working with land brokers for over a year, Josh identified a 111-acre lot listed at $4,500 an acre. During negotiations, Josh learned the seller was considering a few different offers he had received six months ago.
The competing offers were between $2,900 and $3,000/acre but were using financing.
Josh knew his self-directed IRA provided him an advantage his competition didn’t have, giving him better odds of winning the bidding war.
“I told my broker, ‘Tell them this isn’t going to be a finance deal but all cash with check-in-hand,’” Josh says.
Josh’s IRA won out and purchased all 111 acres for $249,000 with cash from his IRA. His final offer came out to approximately $2,243/acre, significantly less than the nearly $500,000 asking price.
Furthermore, Josh was able to “outbid” his competition by using his self-directed IRA, despite undercutting their offer by more than $70,000.
“The only reason they took the deal is that I was a cash buyer,” Josh says. “Without having the ability to do a self-directed IRA investment on raw land, I would have never had the opportunity to have this much cash available for the purchase, thus forgoing the possible return.”
Josh is eyeing a significant return for his IRA investment. Two weeks after his IRA acquired the land he was offered $440,000 for all 111 acres ($1,720/acre over his original purchase of $2,243/acre).
Despite the opportunity to turn his $249,000 investment into $440,000 in just two weeks, Josh declined the offer. He explained the property was timbered two years before his IRA purchased it and, if he holds it for another three to five years, he expects to sell the land for more than $5,000 an acre once the next round of timber is ready for harvest.