A creative way to use IRA for real estate

Mexico developers seek spark for investor sales

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Mar. 24, 2010

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Mexico developers seek spark for investor sales

Tom Kelly
Inman News

Like second-home sales in the U.S., sales of Mexican homes have been limping along. They are a luxury that buyers have been unwilling to revisit until the economy improves.

While anecdotal evidence is beginning to reveal increased activity in some of the more popular resort areas, a lack of bank funding or sales has slowed most developers' projects.

"We have some buyers who have returned to look and buy," said Max Katz, who operates Baja Real Estate Group in Rosarito Beach, about 70 minutes south of the California border.

"But it doesn't help when U.S. television (media) repeats the same shows on crime in Mexico that they were showing 18 months ago."

Much has been written about the kidnappings, roadside hijackings, crooked cops and the infamous banditos in some of the regions of Mexico. Most of the violence south of the border, however, is directly related to the drug cartels and the authorities who are trying to eradicate them. There is absolutely no pattern of any innocent U.S. citizens being randomly murdered in drug violence.

Unfortunately, the negativity surrounding the country comes at a time when more and more Americans could use a less expensive place to live. According to a new report by the Washington, D.C.- based Center for Economic and Policy Research (CEPR), baby boomers have not saved for retirement and they will be forced to work longer and/or move to less expensive places than they anticipated.

Property taxes, health care, and cost of living will force boomers to consider moving to other countries, especially if they plan on living at the same level of comfort as they do now.

John Youden, the Vancouver, British Columbia, native who founded a multiple listing association in Puerto Vallarta in 1988 (www.mlsvallarta.com) and also publishes a highly respected real estate magazine, believes developers will have to offer potential buyers a creative proposition in order to sustain sales.

A Puerto Vallarta-based group headed by the recipient of a master's degree in business administration from Harvard University took Youden's message to heart. It is seeking buyers/investors looking for a guaranteed rate of return and has found the offering to be an ideal alternative to conventional Individual Retirement Account investments.

One hour south of Cancun, on the Caribbean Sea's Riviera Maya, the company is building a condotel adjacent to Madrid-based Bahia Principe Group's mega resort. Called Sian Ka'an, the development is on its own golf course. The condo hotel is a gated community with 24-hour security, and it has access via a private bridge to the adjacent resort and its pools, spa, restaurants, tennis courts and boutiques.

Because Bahia Principe needs additional rooms during much of the year, the corporation is guaranteeing an 8 percent annual return to investors on their rental unit for seven years, even if the unit is not occupied.

Personal use by the owner is allowed, yet owners-investors can also enter their unit in the guaranteed rental pool. After that period, owners-investors can renew the contract or take sole possession of their unit.

To prepare for your real estate IRA, designate the amount of your retirement funds that you wish to use in the property deal and open a new IRA account with an independent administrator.

The guidelines covering real estate IRAs are stringent. If you break one of these rules, you could jeopardize your tax-free status on your account.

The land or house must be treated like any other investment.

All rental profits must be returned to the trustee.

You cannot manage the property. But your trustee can hire a third party -- a real estate broker, or local manager -- to collect rents and maintain or improve the property.

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