23 June 2008 180 views One Comment

What if you find a great opportunity in Mexico real estate but do not have the funds available to buy the property? No problem! Here are some alternative financing options you may not have heard of.

Self Directed Real Estate IRA

One possible source of funds that you may not have thought of is your IRA account. Laws allow individuals to use their IRA to buy real estate investments without penalty as long as you don’t use the property until you are 59 1/2. You can do this by setting up a self-directed real estate IRA through a trustee or custodian. You can usually find these services through banks and financial service providers like Guidant Financial, a company that specializes in self-directed IRA. Guidant will set up an LLC for you so that you can transfer IRA funds into the LLC and then use funds to invest in almost any investment vehicle.

Warning: Consult a professional and make sure you understand all the rules before using your IRA funds to invest in real estate. If you break any rules you could lose the tax-free status on your entire IRA balance. For instance you can not do any repairs or manage the property yourself, since this would be considered a contribution to your IRA.

One of the disadvantages of using IRA funds is that you are prohibited from using your investment home until age 59 1/2. This might take some of the fun out of investing in Mexico real estate because you wouldn’t be able to use it as a second home or vacation home.

Fractional Ownership

Another alternative is to find investors that are willing to split the investment property into fractions so that you can reduce the amount you need to invest. If the group uses non-restricted funds, they could also enjoy some added benefits to their investment, like sunny vacations. You could set up a schedule with your partners so that you can use the property for a portion of the year.

Non-Recourse Loan

Another option is to borrow money from a bank with a non-recourse loan. This is a special loan in which the property is the only asset that the lender can claim in the case of a default. If you are worried about losing your IRA funds, this may be the best option for you. The hard part is finding a lender willing to grant a non-recourse, but there are several companies that will! North America Savings Bank is one lender who specializes in this type of loan.

This is just an overview of some financial options a lot of investors may not know about. It would be wise to consult a professional before making any life changing decisions.

Full Disclosure: Guidant Financial is a partner of Mexico Real Estate Investment