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Leveraging your Individual Retirement Account (IRA) to purchase real estate can be a smart and solid investment.

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Mortgages 101

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Refinance Your Mortgage

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Getting a Loan

IRA to Buy Property

A self-directed IRA allows the account owner to make investments on behalf of his or her retirement plan. By law, investments are not limited to the standard stocks, bonds and mutual funds, and real estate is a popular permitted investment. 

Though foreign real estate investment is completely legal, some custodians require investors to choose from their own, limited investment options. If this is the case with your custodian, make the switch to one who is experienced in foreign real estate purchases.

After you have found the right custodian, you must change from your current IRA company to the new firm and establish your account. You should also hire a lawyer in Costa Rica – preferably one with experience in self-directed IRA real estate purchases – to handle local issues. Several steps to purchasing Costa Rican real estate are impossible or illegal without a lawyer.

International real estate investments are subject to the same restrictions as their domestic counterparts. The real estate transaction must be between your IRA (not your person) and an unrelated seller. Disqualified persons include but are not limited to a plan fiduciary, a person providing services to the IRA, an employer whose employees are covered by the plan, an organization whose employees are covered by the plan, a direct or indirect owner, or a family member of any of the previous individuals.

Furthermore, if the IRA uses a mortgage to purchase the property, it must be a non-recourse loan – one that cannot obligate your person to repay. Non-recourse loans are more difficult to obtain than traditional mortgages. Your IRA must have sufficient cash flow and/or assets to repay the loan, as your person is not permitted to pay on behalf of the investment fund.

Real estate may include residential or commercial properties, as well as land, new construction, a rental property, and property renovation. You are allowed to place a mortgage against the property, and may also reside in your investment. If you invest in a rental property, be aware that any personal use – even a week per year – could disqualify your entire self-directed IRA, resulting in penalties and higher taxes. 