After a thoroughly researched conversion three years ago Lorraine Walls has quickly become an enthusiastic evangelist for self-directed IRA real estate investing.
“We only started three years ago because five, six years ago everyone was losing their shirts in savings and retirement funds,” said Walls, named 2011 Self-Directed Investor of the Year by Equity Trust, a company specializing in allowing clients to invest their retirement accounts in alternative investments such as real estate.
Walls said her husband, Richard, researched the topic for almost a year before pulling the trigger “because it seemed too good to be true.”
He was finally persuaded and transferred his Roth IRA to Equity Trust, one of the few companies he found that allowed for truly self-directed IRA investing in real estate. In late 2009, the couple purchased an investment property in Lehigh Acres, Fla., using this new weapon in their investing arsenal.
“We picked up our first one, (the previous owners) paid almost 300 thousand for the home, he got it for 82 (thousand),” said Walls, her light accent betraying her British roots, although she is an American citizen now. “We rented it within two weeks.”
Loving Lehigh Acres
That successful foray convinced Walls to transfer her own IRA into Equity Trust and use it to purchase two additional homes also in Lehigh Acres — in fact on the very same street as the home purchased with her husband’s IRA.
“We bought three on the same street because they were all foreclosing at the same time,” she said, noting that she landed even better deals than her husband because the market dropped further after his purchase. “He paid I think like 29 per square foot … I moved mine over and I bought two on the same street and paid about 27 per square foot.”
The danger of catching a falling knife in a declining market didn’t discourage Walls and her husband, who were purchasing the homes as long-term rental investments for a steady cash flow return.
“We stuck to Lehigh, which everyone said don’t do it,” said Walls, adding that the couple now owns a total of nine properties in Lehigh Acres, one of nation’s hardest-hit real estate markets. “I went with what I was comfortable with. We don’t need to make millions straight away.”
The income generated by the Walls’ IRA-owned homes flows directly back into their IRAs, as required by the Internal Revenue Service. Any property expenses flow directly out of the IRA, which is just fine with Walls.
“All the bills go to the IRA, all the interest is going to the IRA, and it never affects your household budget,” she said.
Although she purchased the Lehigh Acres homes primarily for the long-term cash flow, Walls said steady gains in home price appreciation have her rethinking that strategy.
“Actually I’m thinking about selling because the prices have almost doubled in the last two years,” she said, noting that her real estate agent is urging her to list one home in particular. “I paid 58 thousand for this property and he wants to list it for about 105 (thousand).”
This article is excerpted from the October 2012 issue of the Foreclosure News Report, an award-winning newsletter published by RealtyTrac. Subscribe for an annual subscription before Nov. 15 and get the October issue free.