How to Profit from the Mortgage Crisis with your Retirement Funds

The credit crunch may be depressing the real estate market, but it is also creating many extraordinary real estate investment opportunities. Many U.S. investors are panicked and seeking safer ground, and …

The credit crunch may be depressing the real estate market, but it is also creating many extraordinary real estate investment opportunities. Many U.S. investors are panicked and seeking safer ground, and others are deterred by the difficulty of obtaining a conventional real estate mortgage under the stricter lending criteria enacted since the mortgage crisis. However, some real estate investors are finding new ways to take advantage of the opportunities out there by adapting their techniques and buying or selling through their retirement accounts without having to deal with the banks.

 

Seller carryback loans

Facing a shortage of buyers able to get approval for a mortgage, sellers are eager to compromise and take part in the financing process. This has created a new credit market based on credit between retirement accounts an individuals to facilitate the buying and selling of real estate. At my own company, PENSCO Trust, we see many retirement account clients taking seller carryback loans, which allows them to continue leveraging their real estate investments. Clients who have sold real estate held in their IRA accounts have been willing to extend a loan to buyers to close a deal.

 

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Secondary mortgages

With the rise of foreclosures, there has also been a rise in the secondary mortgage markets, which are facilitated by capital in retirement accounts. For example, many of our investors are either buying bank-owned forelosure propeties (REOs), or are extending loans to people who are facing foreclosure and who have substantial equity in their properties. These loans, generally described as "trust deeds" or mortgages, help homeowners to forestall and potentially avoid foreclosure in many cases. If foreclosure does occur, the lender is protected because the debt is covered by the equity and property sales price.

 

Real estate option contracts

This kind of investment vehicle popular has become popular in today’s unstable market. In a real estate option contract, the optionee pays the potential seller an irrevocable cash payment and gains the right to purchase the property within a set period of time for an amount agreed upon by both parties. If the optionee elects to purchase, the seller is required to accept the offer at the agreed price. If the optionee does not purchase before the period expires, then the seller keeps the option amount and the deal is retired.

Real estate option contracts can be very proftable for investors, and if you think that there are no investment opportunities in today’s real estate market, think again. We recently had a client extend $10 to consummate a real estate option on a $350,000 home that they flipped to another party for $525,000, moving $175,000 in profit into their IRA.

Using a little creativity, you too may be able to make a lot more in today’s depressed market (buying on sale) than you could have when real estate was "booming" in 2005 and 2006.

 

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