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NEOhio1

Dec 4, 2005, 6:42 PM

Post #1 of 31 (3234 views)

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Buying in Mexico from self-directed IRA LLC

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Planning to buy property using an IRA - self-directed LLC - specific to each piece of property.

Has anyone had this experience. Any recommendation for a US custodial agent, preferably offering check book control thus administrative fees only and allowing ease of access to the money for remodeling.

Also, we don't seem able to explain this concept to the real estate person or the buyer, both nationals, - especially that it is not a "business" buying the property. Also the need for all written materials to reflect the custodial name of the IRA instead of our names and that the check (wire transfer) is not from us seems to be the major sticking point which muddies the waters even more and makes everyone go back to the business buying conversation. As a result we are talking in circles.

Any experience is welcome.

Anita

(This post was edited by NEOhio1 on Dec 4, 2005, 8:18 PM)

NEOhio1

Dec 5, 2005, 11:34 AM

Post #2 of 31 (3174 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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Nobody, not even the banker?

Anita

abq

Dec 5, 2005, 12:01 PM

Post #3 of 31 (3167 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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I looked into it but decided it was not worth the hassle. This is what I was told by an expert. First you need to form a Mexican corporation and keep up the required reporting each quarter. If you decide to sell you will need to pay corporate capital gains taxes as Mexico has no interest in sheltering your 401K money.

Bubba

Dec 5, 2005, 2:33 PM

Post #4 of 31 (3136 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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Banker response:

Do not even consider doing this.

NEOhio1

Dec 6, 2005, 8:17 AM

Post #5 of 31 (3063 views)

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Re: [Bubba] Buying in Mexico from self-directed IRA LLC

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Well, Bubba, whats the down side, in your opinion?

From an IRA its rather simple to do, and the investment rules are pretty clear - you can't buy any property from which you stand to gain, you can't live in it or sell it to family etc...a management company has to manage it is the advice we've been given which would make it clear its an arm's length transacation. All expenses and remittances have to come from and go into the account from the very beginning of the investment. The IRS rules are very clear, and we're not going to cross them, we know a few people who use a self-directed IRA together with mortgage companies to offer sub-prime mortgage money at terrific returns, and others who work with remodeling companies on flipping property.

The information I have from the CFP is similar to the web information - google, IRA LLC real estate or in particular www.trustetc.com.

A 401K is more difficult to convert as has been pointed out. And I appreciate the experience post, thanks.

Anita

(This post was edited by NEOhio1 on Dec 6, 2005, 8:48 AM)

Bubba

Dec 6, 2005, 11:14 AM

Post #6 of 31 (3029 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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Anita:

You are talking to a guy who worships at the throne of principal conservation with about 90% of his IRA money in top-rated corporate bonds and insured TCDs laddered for maturities. I got out of the stock market just before it crashed and am, thus, living in paradise rather than flipping burgers in Napa. I wouldn't even think of putting IRA money in direct real estate investments especially in a foreign country and the mere thought of sub-prime mortgages makes my skin crawl.

I first went into banking in 1966 and have seen recurring real estate market crashes and liquidity crises in California over the years. I have also seen how the sub-prime mortage markets attract scoundrels who promise ridiculous rates and now have forwarding addresses in Brazil where they can never be reached. Since I was both a commercial real estate and commercial asset based lender, I cannot begin to tell you haw many successful clients I served who are still scratching out a living because their real estate investments tanked or their wine inventories turned to vinegar.

So, you asked the wrong guy. I am a banker, after all, You might ask several friends of mine who were all starry-eyed about putting their IRA portfolios into the NASDAQ on the day in 2000 when I got out of the market altogether. Some told me I was an idiot. Well, maybe so but I am retired and own my own home now in Mexico and they're still working wondering about that truck that ran over them.

(This post was edited by Bubba on Dec 6, 2005, 11:59 AM)

sfmacaws

Dec 6, 2005, 11:38 AM

Post #7 of 31 (3019 views)

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Re: [Bubba] Buying in Mexico from self-directed IRA LLC

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Well, they do say that bankers are very conservative <g>

I don't see a problem as long as the percentage of your investment is on the small side of your total. It's divirsifying. I think it is pretty clear that this isn't their whole nest egg and their future doesn't depend on it.

I agree that you would need to set up a mexican corp to hold the property though and that you need to talk to a good notario about it. This sounds like it falls exactly within the requirements for owning property via corporation here, it's a business. Yes it will take some setting up and registering but if the business is only hiring the management company then the tax and employment expenses wouldn't be so big a deal. It would be an interesting learning experience, think of all the ins and outs you will learn about Mexico. Just make sure you go into it in relaxed mexican mode, if you try to make it all happen on a US timetable it will give you a stroke. Keep repeating, Ni Modo, Ni Modo

Jonna - Mérida, Yucatán

NEOhio1

Dec 6, 2005, 3:10 PM

Post #8 of 31 (2981 views)

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Re: [sfmacaws] Buying in Mexico from self-directed IRA LLC

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Bubba, conservative and laddered is the way to go.

This portion though would be rolled over into a separate IRA entity specifically to own rental real estate. We found a small but presently uninhabitable property in Ajijic for round numbers $50K. So let's say we transfer $100K into this new IRA and title it "Bank & Trust, custodian FBO Mrs. Anita, IRA" we have to make the offer for the property in the name of "Mrs. Anita, IRA" and then the remittance for the property would be made from a check that says at the top of it, "Mrs. Anita, IRA" and it would be drawn on funds held by the Bank & Trust, custodian. Therefore the Deed must read, "Mrs. Anita, IRA", the rental company contract must read the same. And the property must be appraised every year and reported, along with other forms, to the IRS. I wouldn't think those figures would be reported to Mexico.

However since it is not habitable, work needs to be done. So the work is contracted for under the name "Mrs. Anita, IRA" and all expenses are paid for from that Bank & Trust, custodian, account as well as all income generated, or sale profit, eventually returns directly to that account.

Jonna, I am assuming if I add the LLC component to the IRA that is what triggers the Mexican corporation argument - we have a foreign tax accountant looking at closely. The LLC is not absolutely necessary as it primarily shields personal assets if you should get sued in connection with the property and also works conversely shielding the asset if sued for something else. There are some limited taxation benefits on gain, but those are minor in this case. And of course should I want to invest in US real estate I would need that, so the IRA could be rolled over again into and IRA, LLC entity.

When the CFP and accountant explain it this all seems simple. Our broker is familiar with it, not happy with the exit of some of his possible commission capital, but said he'd probably do it this way.

We got to this by way of wanting to purchase urban real estate in downtown Baltimore, $35K, 3 story, stripped brownstones eligible for 2 and 4% 204 money for rehab and 15 year tax abatements. However, the regional authority can only loan money to individuals who actually live in the city now. But the IRS codes mention foreign real estate and that is how this began.

Getting the IRA attached to the offer has been so hard to explain to the relator.

Jonna, let us know when you are back in the area, its a good bet Bubba and I will be neighbors, so bring that RV right on in the street. Best to the red head.

Anita

abq

Dec 6, 2005, 4:24 PM

Post #9 of 31 (2967 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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There is a book called IRA wealth by Patrick Rice that is pretty helpful. A poster on this sight got it free from one of the US companies that set up these type of accounts. (promise I'll return it) She only found one company that was even willing to talk about taking on a Mexican property. They did require title insurance.

As I posted before, I decided against attempting this project In Mexico when I learned that I would still have to pay all the Mexican taxes associated with the property. Mexican capital gains tax can be pretty hefty as they're not always tied to true profit like the US. And there will be no home owners exemption.

If you can find a way around all this, I'd love to hear about it.

NEOhio1

Dec 6, 2005, 4:53 PM

Post #10 of 31 (2959 views)

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Re: [abq] Buying in Mexico from self-directed IRA LLC

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abq - that's interesting because a self-directed IRA is just that, you decide within the confines of the IRS regulations which specifically prohibit certain items and because real estate is not specifically excluded it is permissible. I will find the IRS cite and post it for you.

It was explained to me that some firms that offer custodial accounts also offer advice, those are not appropriate for this purpose, becuase they also usually offer "proprietary" investment opportunities - that's bad because they will try to steer you to their products.

The firms that offer only administrative custodial accounts are the "right" ones because they do not pass judgement on the investment - in fact they have only two concrete needs - make sure the property is appropriately titled, and that the i is dotted and the t crossed with the record keeping and to file the correct forms each year.

Anita

sfmacaws

Dec 6, 2005, 5:50 PM

Post #11 of 31 (2949 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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Abq has one point that I had forgotten and that is important to this discussion, you get no pass on mexican capitol gains if the property is owned by a corp.

What I was trying to say before Anita, but probably wasn't clear, is that the self-directed IRA from the US would own a Mexican corporation that was incorporated to rehab and manage rental property. So, I'm not talking about an LLC or US Inc but an S.A. de CV mexican corporation. It is definitely doable - from what I have heard from friends who just did this near Chetumal - to buy property with title held by the mexican corporation. It might not be such a conundrum to the sellers or notario here in Mexico to do it that way. You will owe mexican taxes and will have to file quarterly statements to Hacienda but if you have no income or no employees then I "think" it would be simpler. As I mentioned above and as Abq said, the hit would come when that mexican corporation sold a piece of property. That bears some scrutiny.

It would be great to spend time parked near Casa Bubba and Casa Anita, my memory of that road is that it is anything but level. We'll come and take a look when we are there. I don't know when that will be though. Maybe in March.

Jonna - Mérida, Yucatán

(This post was edited by sfmacaws on Dec 6, 2005, 5:52 PM)

abq

Dec 6, 2005, 6:32 PM

Post #12 of 31 (2937 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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The firms my friend looked into (knowing her, probably all of them) had to approve the purchase. I'm pretty sure they trusted the owner to determine the value but they did have some strong ideas that a Mexican purchase was not in "the plan", But please prove her wrong and post your findings.

Moisheh

Dec 7, 2005, 6:29 AM

Post #13 of 31 (2883 views)

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Re: [abq] Buying in Mexico from self-directed IRA LLC

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This whole discussion is just so much nonsense. I am not a tax lawyer but you cannot form a corporation anywhere in N.A. with no expectation of ever showing a profit and write off the expenses . From reading the posts I assume you want to expense all the repairs and then move into the house. I would hope the IRS and the Hacienda see though this tax fraud! Greed will get you every time! Just go and buy the damn house!

Moisheh

abq

Dec 7, 2005, 7:40 AM

Post #14 of 31 (2865 views)

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Re: [Moisheh] Buying in Mexico from self-directed IRA LLC

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Don't worry. It's not that simple. When she reaches a certain age, she would have to start "disbursing" ownership to herself. My guess is the cost to have a notario in Mexico handle that would be so prohibitive that she would sell the whole thing , pay Mexico their "bite" and reinvest in something else.

dtracy8671

Dec 7, 2005, 9:58 AM

Post #15 of 31 (2842 views)

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Re: [abq] Buying in Mexico from self-directed IRA LLC

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This whole thing sounds like way to much work and investigation for me!

NEOhio1

Dec 7, 2005, 11:21 AM

Post #16 of 31 (2816 views)

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Re: [dtracy8671] Buying in Mexico from self-directed IRA LLC

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Actually you are all three wrong. Any property purchased thru the IRA CANNOT be used by the IRA owner, spouse, children, or direct lineal descendants. You can't rent it to yourself, you can't have a business you own lease it space in it, you can't pay yourself to manage it, nor can you pay yourself to do repair or remodeling work.. it is an "arm's length" transaction for the entire time the IRA owns it. All expenses must be paid by the IRA and all rental income or sale profit must return to the IRA, there is no depreciation advantage, no expense write offs, none of the usual tax advantages common to property. Every penny of the entire amount in the IRA, incuding the house value is considered a full distribution retroactive to the first of the year in which you erroneously don't follow the rules.

As in any other IRA when you reach 70 1/2 you must take the appropriate distribution from it, that can be made in either cash or percentage of ownership and you have to pay taxes on the distribution at your prevailing tax rate.

The advantages are that the rent the property collects is not income to you, it is income to the IRA - think of it as a dividend payment each month. When you sell the house the market appreciation is not taxed, it is put into the IRA and you can buy another place with it, or invest it in conventional investments, whatever, but there is no gain tax and it is taxed when you eventually have to take distributions from it.

Since I am 50 there are 20 years in which I can buy, improve and either sell or keep it and 20 years in which the profits from that can be invested in more property, or anything else allowed, without taxation.

Its just like a paper investment - you don't recieve any benefit from your stock other than its gains - you don't get anything from
the property other than its gains. And eventually you pay tax on both of them when you draw distributions.

What makes you think this is greedy, or too hard? Its a method of maximizing return by betting on the property in Mexico increasing in value over the next 20 years.

Sounds like a reasonable risk level to me.

All three of the firms - each with varying levels of involvement - have said they don't care if the property is in Timbuktu, as long as the reporting rules are maintained its none of their business.

Anita

roni_smith

Dec 7, 2005, 12:38 PM

Post #17 of 31 (2803 views)

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Re: [Bubba] Buying in Mexico from self-directed IRA LLC

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Investments are kinda funny. I hope everyone has many happy returns on theirs. Real estate in Mexico makes me a wee bit nervous - as an investment. Heck, it makes me a wee bit nervous in the US and our home is the only real estate we own.

If my IRA was the only thing I had for retirement (that and SS), then I would be more conservative at this point (54 years of age) than I am. We both have pensions though - and they are state pensions, so a bit safer than corporate pensions these days.

Others are comfortable with greater risk. Risk is fine as long the potential reward for taking on greater risk is commensurate with the risk. I kinda like principal preservation also, but these days I worship at the altar of the commodities boom (I was converted back in 2002 :), and the use of stop-loss orders. Gains in the IRA's can make our retirement more comfortable and provide more of a cushion. The complete loss of them would not put us in the poor house, but would keep us working several years longer than we want to. I am not willing to take on that risk for the possibility of greater rewards.

As we get closer to that time of retirement, I will switch membership to a more conservative altar. That might happen if many of these trailing stop orders get triggered.

Best of Luck!!
------
Planning for Mexico Move Blog

(This post was edited by roni_smith on Dec 7, 2005, 12:41 PM)

Bubba

Dec 7, 2005, 2:47 PM

Post #18 of 31 (2775 views)

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Re: [roni_smith] Buying in Mexico from self-directed IRA LLC

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You know, Roni:

We have to try to discern what Anita is after and that seems to be a way to utilize statutorily unavailable IRA funds for investment involving the direct labors of her, no doubt, long-suffering husband. In that sense, her scheme (in the English and not pejorative sense) may be practical.

I am 63 and radically changed the investment mix in my personal retirement investment portfolio only at age 59 and then only after having become aware of the fact that, should I lose the wealth resulting from 30 years of labor, I could not regain it.

The principles I live by are fairly simple:

Hold on to the nest egg as if it were your balls which, by the way, become more ornamental than the foundation of your very being after 60 but still contribute to your foolish notion that you are still alive or matter for that matter.

Never invest in anything that involves complexity beyond your clear understanding or evolving law.

Never buy a self-inflating device that claims it can reduce the size of your stomach or increase the size of your penis by several inches in conjunction with the music of Fats Domino.

(This post was edited by Bubba on Dec 7, 2005, 4:40 PM)

Georgia

Dec 8, 2005, 2:43 PM

Post #19 of 31 (2672 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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The difficulty, Anita, is that this scheme somewhat mixes apples and oranges: the Mexican taxation system with the US ERISA system. In the mix, you may, or may not, lose some of the benefits you seek to gain as a consequence of the Mexican taxation of property not held in toto by a natural person. I think you need to consult with someone who specializes in international taxation and ERISA questions. Such a person probably exists in a very expensive stratosphere.

My quick fix suggestion would be to acquire the property in this title: Jane Doe, IRA custodial. They'll probably figure your mother's last name was IRA custodial, but that's another story.

Georgia

Dec 8, 2005, 2:44 PM

Post #20 of 31 (2670 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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Another consideration: if you have Roth IRAs instead of the traditional IRA, you might consider using the Roth funds, since you've already paid tax on them. Are you eligible yet to do that?

abq

Dec 8, 2005, 3:04 PM

Post #21 of 31 (2663 views)

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Re: [Georgia] Buying in Mexico from self-directed IRA LLC

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Here in San Miguel you have to provide your visa and passport copies to apply a for permit to buy property. The notorios asked for ID from the sellers as well.

You do have a good point about the Roth. That way you wouldn't have the nasty problem of gradually deeding the property back to yourself.

Cehovet

Dec 10, 2005, 10:12 PM

Post #22 of 31 (2559 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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Also, the logistics of running all the receipts and disbursements through the custodial account could create significant payment delays. Not a difficulty here in the States, but I envision challenges going across a border.

Bert

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NEOhio1

Jan 11, 2006, 7:46 PM

Post #23 of 31 (2411 views)

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Re: [Cehovet] Buying in Mexico from self-directed IRA LLC

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http://www.trustetc.com

Here is the web site. It is very comprehensive. Stewart Title is familiar with the process.

Hope you find it interesting. Anita

1ajijic

Jan 12, 2006, 8:20 AM

Post #24 of 31 (2378 views)

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Re: [NEOhio1] Buying in Mexico from self-directed IRA LLC

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I have to agree with Georgia. Trying to get this type of transaction through would be like doing it in the states during the 50s. First you'll have to teach everyone involved that is a legal transaction, all on your nickel. Then you're going to have to file mexican Income taxes on any rents and capital gains whenever you ultimately sell and who knows what their future capital gains laws will be, before anything goes back into your IRA account. It is a wonderful academic exercise, but, agreeing with Bubba - God help me - life is too short. Isn't it better to just simplify?
http://www.newbeginningsmexico.com

zoeq1000

Jan 15, 2006, 8:43 AM

Post #25 of 31 (2290 views)

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Re: [1ajijic] Buying in Mexico from self-directed IRA LLC

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I am with Bubba on this one. If you can't listen to a real estate banker on real estate, who can you listen to? Also, working with the Mexican government in any way is scary to me. A good notario should be able to advise you on the Mexican side. A good one here in Queretaro is Mr. Ricardo Reyes Macedo who speaks some English. His number is 011 52 442 212 0069. If he doesn't know what you are talking about, don't even think about this kind of investment. I doubt if he would charge anything to talk with you.

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