Entrust Learning Center > Investments > Buying Property in Mexico with Your IRA / 401(k)

Buying Property in Mexico with Your IRA / 401(k)

By: Carl Fisher

OTP Trust, Phoenix

Trillions of dollars in IRA's and 401(k)'s and the NYSE is at all time highs -- where is one to
invest? True diversification today includes portfolios beyond stocks, bonds, and mutual funds
-- portfolios that include global investments including real estate. As California and Florida --
old time favorites -- are suffering from a glut of properties, falling prices, increased taxes, and
outrageous hurricane insurance premiums, real estate investments outside the United States
have become increasingly attractive.

Mexico offers a number of advantages for American retirement fund investors. Mexican real
estate of virtually all types it is still relatively a bargain, and several markets -- notably Rocky
Point -- have experienced very rapid appreciation of the value of a broad spectrum of
properties.

Many investors want a locale that is relatively easy to travel to from the United
States and Canada -- which Mexico certainly is -- and another factor that makes Mexico a
great choice is that many Americans and Canadians simply like to go there. At Entrust CAMA
we believe strongly in the maxim "Don't own a property in an area you don't want to visit."
Today, many financial planners and professional advisors in the United States and their clients
realize that IRA's and 401(k)'s can buy real estate, provide mortgages, loan money, and
invest in private entities. However, the Mexican government does not recognize the IRA /
401(k) trust as a legal entity able to purchase property. How does one proceed?

Raul O'Farrill, President of OTP Trust and Founding Partner of O'Farrill & Associates (two of
Mexico's most prestigious bi-national real estate services firms), informs us that the Mexican
government does recognize other entities that allow the use of IRA's for investment in
Mexico.

The acceptability of the United States companies and other entities is extremely
good news for American IRA and 401(k) owners and makes Mexican real estate ownership an
attractive investment option -- especially as California and Florida are suffering from a glut of
properties, falling prices, increased taxes, and outrageous hurricane insurance premiums.
Investors are using their IRA's / 401(k)'s to purchase shares in partnerships that subsequently
purchase or already own property in Mexico. The types of properties being acquired using
this method include raw land, single family residences, town homes, condotels, fractional and
multi-fractional holdings. It is still a common -- and often profitable -- practice to purchase
pre-construction contracts and flip them prior to ever taking title.

O'Farrill states that IRA / 401(k) investments in Mexico are a great opportunity for Americans
looking for a profitable investment for their retirement. In fact, an individual's IRA can be
combined with other funding sources such as his/her other savings or retirement accounts --
as well as other people's IRA's -- to make a bigger and more profitable investment. This profit
is returned to the IRA or 401(k) and is either tax free (in the case of Roth plans), or tax
deferred in the case of a traditional account. There are no capital gains taxes on the
investment gains.

Of course, there are IRS rules and regulations that must be followed.

The first thing that the potential IRA / 401(k) investor should be aware of is that the owners
cannot use the property personally, which is strictly prohibited by the IRS. The purchase must
be made for investment purposes only. It would be considered a prohibited transaction
should an IRA owner receive a present benefit from their IRA's investment. Related parties of
the IRA owner such as parents and children are also prohibited from using the property.

It is imperative for an IRA owner to select an administrator that is knowledgeable in the area
of self-direction. We also strongly suggest that you choose an administrator familiar with
foreign investments. When choosing an administrator/custodian you should look for one that
offers continuing education credits for professionals such as CFP's, CPA's, attorneys, realtors
etc. so that you can be assured of a smooth, seamless transaction with all parties
involved. The company should have a knowledgeable and accessible staff that offers one-onone
service throughout your transaction process. As real estate transactions are often timesensitive,
the company needs to be readily available with information and resources.

At EntrustCAMA we differentiate ourselves from other administrators by giving personal, oneon-
one services. I take calls on my mobile phone every day from clients who just have a
question, or who want me to explain something to their CPA or Financial Planner. At
EntrustCAMA we are also investors who know how investors feel and what they need.
So how complicated is this process? Not extremely complicated, but probably enough that
you'll want experts working on your behalf. The following outline demonstrates how these
transactions are executed at our firm:

1. Open a self-directed account with EntrustCAMA and transfer the required funds for the purchase from your existing administrator to EntrustCAMA.
2. Through an attorney, form the most appropriate entity in the United States and have the IRA purchase the shares of the entity. The shares purchased will be vested "EntrustCAMA FBO (for the benefit of) your name IRA #12345." (Note; it is good practice to have an attorney provide an opinion letter stating the entity is IRA / 401(k) compatible.
3. The entity now has the funds to purchase the Mexican property. Mr. O'Farrill suggests using a one-stop firm familiar with corporate entities and United States law, Mexican law, IRA's / 401(k)'s, that can provide services including deed preparation, title commitment, insurance, etc. We suggest that firms like Mexico Real Estate & Yacht Club -- owned by Heidi Wosak, who is real estate Investment Specialist with three real estate attorneys in her team -- is a good example of the integrated investment approach that best serves IRA / 401(k) investors.
4. All expenses are paid from the entity; earnings including rent or sale proceeds are returned to the entity and then passed to the IRA thus providing excellent tax advantages. For added convenience, all expense and income checks can be processed by the administrator if the client prefers.
5. Taxes paid in Mexico will be credited in the United States because of the United States- Mexico treaty that prohibits double taxation. The set-up fees for the self-directed IRA and the purchasing entity together range $400 to $700 -- which obviously very rapidly pay for themselves when you consider the tax savings in any good investment.
   

Carl Fischer is a Principal & Senior Self-directed IRA Administrator at EntrustCAMA, a firm specializing in self-directed retirement accounts with several offices in Pennsylvania and New Jersey.

For further information you can contact Carl Fischer at cfischer@EntrustCAMA.com, through www.EntrustCAMA.com or 866 559 4430.

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