Friday, September 10, 2010

Use A 401K Or IRA To Buy Real Estate TAX OR PENALTY-FREE.

By Troy Corman,

It seems almost every day, more favorable media reports are released regarding the turnaround in the residential real estate market. New homes are being built and sold at their highest pace in 2.5 years, with major Texas cities like Dallas and Houston enjoying 25-30%+ increases in new home construction. In fact where I live, in the East Dallas and Lakewood area of Dallas, new homes are usually sold before construction is complete.

With mortgage interest rates at or near their lowest levels EVER, and home demand and prices marching higher, savvy home buyers understand that they may never have a more financially favorable time to buy a home in their lifetime.

The only deterrent for many first-time buyers is where to get the cold, hard cash for the initial down payment and closing costs. Yet, that down payment cash might be right under your nose, if you have a 401K or IRA.

To encourage home ownership, Uncle Sam gives home buyers with retirement accounts a break. You can withdraw up to $10,000 from your IRA to buy a home for yourself or a family member - PENALTY FREE! You can only do this one time in your lifetime so make the most of it. If you have a 401K or 403B or other qualified plan, from a previous employer, you can roll over that account into a rollover IRA to purchase a home.

This technique allows you to take advantage of the current soft real estate market and record low Dallas mortgage rates. Also, with the negative stock market returns of the last 10 years, and with out-of-state residents and companies relocating to Texas in droves, Dallas and DFW residential real estate should provide a predictable and stable return on investment. To top it off, you'll get to enjoy the creature comforts of living in your own home.

You can also use your IRA to buy investment real estate, as we discuss the details in this previous post.

For homes that qualify, FHA mortgage loans allow down payments of as little as 3.5% of the purchase price. Also, upon negotiation, the seller can pay the buyer's closing costs - up to 6% of the sales price.

If you're self-employed or a small business owner with no employees, you may qualify to borrow up to $50,000 (or 50%)  from your self-employed IRA, TAX-FREE and PENALTY-FREE. To avoid taxes and penalties, you'll have to pay the money back to your IRA within 10 years for a personal residence, or 5 years for investment real estate. Also, the interest rate is super-low since it's based on the prime rate, currently at 3.25%.

For additional details, or if you could use some help buying, selling or leasing your property, or if you just want to chat, contact me at 214.690.9682 or email me at

Troy Corman is the founder of t2 Real Estate LLC, a Dallas real estate firm providing specialized knowledge with a hands-on approach. Specialties include residential real estate brokerage, land and acreage, and commercial real estate services. Contact us today at 214.827.1200 if you need to sell, buy or get your DFW property leased.

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