Before you invest using your retirement funds, you have to learn all about the IRA Limitations when you buy real estate in Costa Rica. Many North Americans don’t know you can buy real estate as an investment in Costa Rica with your self-directed IRA. This is your Individual Retirement Account or your 401(k) Retirement Savings Account.
Very few Costa Rica real estate agents know that you can realize the purchase with your retirement funds without running into trouble. There are certain IRA limitations that you have to keep in mind.
You will need the cooperation of your IRA custodian and a Costa Rica real estate attorney who knows what needs to be done. And of course, an American European affiliate real estate agent to assist you in your real estate purchase.
The IRS rules permit IRA funds to be invested in real estate. But they do not require an IRA trustee to offer real estate as an investment option.
Many trustees who offer traditional IRA investments, such as depository banks, do not allow IRA owner to invest in real estate. That is because of the extra administrative burden of real estate management. As a result, if you want to invest your IRA funds in Costa Rica real estate, you will probably have to convert your traditional IRA to a self-directed IRA. A self-directed IRA is an IRA that requires you to decide what investments to make yourself. And the use of those funds to purchase a vacation home in Costa Rica has IRA limitations.
The requirement places several prohibitions on how real estate can be purchased and used. Therefore, you should know about those IRA limitations. The IRS rules require the IRA-owned real estate to be for investment purposes only. You cannot use it as a residence or a vacation home if you are under 59 ½ years old.
Key to understanding the main prohibition is the term “disqualified persons”.
This term is used regarding IRA-owned real estate to refer to the IRA owner and related persons – meaning:
- The IRA owner and spouse
- Ancestors (mother, father, and grandparents)
- Descendants (children, grandchildren, and their spouses)
- Including the IRA-owner’s investment advisers
- Including any IRA funds trustee
- Any business in which a disqualified person has a 50 percent or greater interest.
IRS rules prohibit the use of IRA funds to purchase real estate from a disqualified person. The rules prohibit a disqualified person from using any real estate purchased with IRA funds, like a home or business. These rules even preclude you from purchasing a vacation home that is only partly for personal use and otherwise rented to others.
Return on Investment
Over the years, we have sold a lot of Costa Rica real estate through pension funds and retirement savings plans. Some plan to retire to Costa Rica in the future and don’t want to have their savings invested in the stock market or other markets. Most other investments do not pay the same ROI as an investment in Costa Rica does. If you invest your money in a rental property in Costa Rica, you can count on a 6 – 10% Return On Investment (ROI).
Our own agents have taken the lead
Some of our own real estate agents have used their self-directed IRA for investment purposes in Costa Rica. If you do it yourself, it’s much easier to recommend it to your clients, isn’t it? It is really very simple: you can use your funds to purchase a building lot and sit on it until the values in the area increase. Or you can use a local builder and build a spec home. Once you sell the land or the property with the house, your initial investment PLUS the profits roll back into your IRA account and your taxes are deferred. They will just stay in your IRA account until you decide to make another real estate investment.
Or purchase your retirement home
You can also purchase the retirement home of your dreams in, for example, a nice location like Atenas from our affiliate agent Marian Veltman. She can rent it out for you as a vacation rental or as a long-term rental. That way, you can roll back the income into your self-directed IRA account. For the Escazu and Santa Ana areas, our affiliate rental agent Daniel Langlois can help you rent out your purchase. We can serve your interests in many other areas of the country.
The best part of the deal is that Atenas has a great market for a rental property. Because it is well located between San Jose and the Central Pacific beaches and the weather is always nice there. Once you retire to Costa Rica, you can purchase the property from your own IRA. IRA owners over 59 ½ years old, have their taxes deferred.
From coast to coast
We also have affiliate partners in the most exotic locations of Costa Rica, like the Caribbean coast, the South Pacific, the Central Pacific, the North Pacific, and the Nicoya Peninsula if you are looking for exotic beach locations to buy your vacation home.
There are of course quite a bit of IRA limitations if you want to use your retirement funds. Any questions can be answered by your IRA custodian, real estate attorney and preferred Costa Rica real estate agent, contact us now.
Feel free to leave your comments on this blog. If you like this article, please feel free to share it on your social media.
If you like this blog, connect with me on Google+ or subscribe to our newsletter by clicking the banner below.
While we’re at it, I DO want to remind our readers that we appreciate any referrals you can send us. Finally, please remember the American-European real estate Group’s agents when you refer a real estate agent. Because we DO appreciate your business.