Investing In Real Estate

Tired of the stock market?

Why not place your IRA into the potentially higher yielding world of real estate investing.

Using Your IRA

Did you know that you can buy real estate or lend money (secured by real estate) with the funds in your IRA? Many people are just now beginning to tap into the benefits of holding real estate investments within their IRAs.

The Basic Logistics

A real estate investment is the purchase of all or a percentage interest in a piece or pieces of real estate. PENSCO Trust requires that all purchases and sales of real estate must be processed through an independent escrow. Vesting must be stated as "PENSCO Trust Inc. Custodian FBO, Client Name, IRA Acct.# ________". All documents, including contract of sale or deposit receipt, must be approved by the client and signed by PENSCO Trust as custodian on their behalf.

Purchases are normally made in cash. Any improvements to the property must be clearly documented and a statement submitted to PENSCO Trust for payment. Tax bills and insurance payments can also be submitted for payment from cash funds within the IRA.

Should the property be receiving income or rent, documentation of all receipts and expenses should be administered by a professional third party and submitted to PENSCO Trust each calendar quarter with appropriate funds or request for funds.

Required documentation is as follows:

PENSCO Trust's Self-Directed Investment Authorization Form (for Non-Publicly Traded Assets)
Preliminary Title Report
Contract of Sale
Escrow papers and closing statements
Insurance Certificate showing PENSCO Trust as custodian with value insured to guarantee replacement cost
Additional information may be required depending on the review of the transaction

Please see below : PENSCO Trust's Checklist

PENSCO Trust's Real Estate Purchase Checklist

For Purchasing Real Estate within your PENSCO Trust Self-Directed IRA

When purchasing real estate with your IRA funds, you should exercise the same due care and diligence as if you were buying it for your personal account. PENSCO Trust acts only as an IRA custodian and gives no investment advice.

Overview and Check List of items needed

The IRA account owner must read and approve all documents and forward them to PENSCO Trust to sign as the IRA custodian. The signed documents will then be returned to the closing agent for processing.
All documents must be vested as "PENSCO Trust Company Custodian FBO 'Client Name' IRA, Account Number".
PENSCO Trust's Tax ID is always used: 02-0526633
The initial deposit, any increased deposit, any expense item as well as all closing costs must be authorized for payment using our Self-Directed Investment Authorization form (for Non-Publicly Traded Assets). The IRA buyer should not make any deposits from their personal funds.
Required Documentation:
- Proposed Preliminary Title Report (or Chain of Title) with full property description (i.e. legal description and street address)
- An independent escrow
- Contract of Sale, counter offers, etc. should all be in PENSCO Trust's name, read and approved by the individual. Note: Contract cannot be reassigned from the individual to the individual's IRA (or other prohibited parties). This could be construed as a prohibited transaction.
- Escrow and closing documents (read and approved by the buyer), should read PENSCO Trust Company Custodian FBO 'client name' IRA
- Funding instructions-we recommend funding by wire
- Evidence of Title Insurance
- Phase I or Phase II Environmental report depending on circumstances
- Copy of Insurance Certificate evidencing coverage for both fire and liability
- Self-Directed Investment Authorization for Non Publicly Traded Assets. Use for funding, deposits, earnest money and balance due.
- Property appraisal

One Example. The Dream Retirement Home

A man in Maine takes early retirement from his firm and sets out to find the retirement home of his dreams. He finds just what he is looking for at a bargain price, but the deal has to close in eight weeks. He plans on selling his investment condo in Boston to raise the balance of the purchase price.

Unfortunately, a softening of the market in Boston is jeopardizing the sale.

He needs an additional $150,000 quickly or he will lose his retirement dream house. He remembers that he has $250,000 in his 401-k. So, he decides to roll it over to a self-directed IRA and sell his stock portfolio to liquidate funds for his purchase. He then directs his IRA custodian to purchase his property with his IRA as the owner. Later he makes improvements to the property with funds from his IRA and rents it out for income, all tax-deferred.

Note: In a similar situation, but one in which you decide to split the purchase with your IRA and use additional outside funds, we recommend that at least 80% of the investment funds come from the IRA.

He eventually sells his Boston condo, pocketing a nice profit. Now he is looking toward his retirement at which time the IRA custodian will turn the property over to him as a distribution of the then market value. Presumably, he will also be in a lower tax bracket, as he will no longer be fully employed.

Making a loan using funds from your PENSCO Trust Self-Directed IRA - Our Checklist

When funding a secured or unsecured loan with your IRA funds, you should exercise the same due care and diligence as if you were lending it from your personal account. PENSCO Trust acts only as an IRA custodian and gives no investment advice. We recommend an independent escrow.

Overview and Check List of items needed

The IRA account owner must read and approve all documents and forward them to PENSCO Trust to sign as the IRA custodian. The signed documents will then be returned to the closing agent, along with funds, for processing.
All documents must be vested as "PENSCO Trust Company Custodian FBO 'Client Name' IRA, Account Number".

For Secured Loans:

These are loans secured by real estate and recorded against the individual property

Required Documentation:

Deed of Trust/Mortgage Direction Letter:

Authorizes PENSCO Trust to fund the loan from your self-directed IRA. Both the client and the loan servicer must sign. Information requested applies to your portion of the loan.
Loan Servicing Agreement:

PENSCO Trust does not service any loans (i.e.: track loan payments, handle defaults, foreclosures… etc.). Use either the loan servicer's own agreement or PENSCO Trust's. Both the client and the loan servicer must sign.
Copy of Note and Deed of Trust/Mortgage:

Make sure both are vested correctly (see #2). If it's a multi-beneficiary note (more than one lender) then the loan servicer keeps the original documents. If a sole beneficiary then PENSCO Trust keeps the original documents.
Funding Instructions:

Funding can be made by wire or check.
Escrow Instructions:

Either from the broker or escrow/title company.

Additional documentation often supplied by brokers/loan servicers for signature:

Lender/Mortgage disclosure statement (itemizes all aspects of the loans and borrower information)
Majority interest affidavit
Equity interest agreement

Unsecured Loans

These are all loans not secured by real estate. Loans can be made to an individual or an entity such as a "C" Corp, LLC or LP. If an individual is the borrower, they cannot be a prohibited party such as a spouse or a member of the immediate family (see Section 4975 IRS Code). If the borrower is an entity, then documents as outlined in our Private Investment Guidelines must be submitted before loan processing.

Required Documentation:

Unsecured Note Authorization:

Summarizes note information
Self-Directed Investment Authorization-Non-Publicly Traded Assets:

Authorizes investments from your self-directed IRA
Loan Servicing Agreement:

See secured notes for further information
Funding Instructions:

Funding can be made by wire or check
Original Note:

Original Note with the borrower's signature notarized and with the correct vesting (see #2)