Samy Mahfar Shares Real Estate Strategies for Your Retirement Fund

Samy Mahfar Retirement Strategies

SMA Equities is a New York-based investment firm that invests, builds and manages multifamily developments, retail, office and mixed use properties with complementary expertise in all facets of development and asset management. SMA investments are nationwide, with the largest share of our assets located within the greater New York metropolitan area. Throughout SMA Equities‘ history, starting in 1986 as SMA Realty, the company has excelled as an active hands-on organization, rather than passive investors.  We had a chance to get insights from SMA’s very own CEO Samy Mahfar when it comes to real estate and your retirement.  Here’s what Samy sent to us in an email recently:

The first thing to do is never forget why you got into real estate in the first place. The land is real (duh), the deals can be huge, and a piece of property doesn’t suddenly lose 90% of its value because a analyst  on Wall Street decides that it’s a sell. (There are two kinds of stock market professionals: those who believe the market is a scam and those who know it.) The question remains, then, why the heck are you still slumming on Wall Street? Well, maybe you personally live in a hovel on the corner of Desperation and Dreamless, but your retirement savings (if you can even call them that) are certainly residing in some stock or fund that is just waiting for the next financial implosion.

“True,” you say, “but what am I supposed to do about it? I can’t just go out and buy a building with my IRA.” Au contraire monfrère! (Stick that down your soy latte gullet.) There is actually a very easy way to take control of your retirement funds and sink them into a real estate deal. What? You’ve never heard about that? No surprise there, my friend. Can you guess who gives you all the info you ever hear about retirement investing? Yeah, that’s right, Wall Street. Let’s right that wrong right here, right now.

The easiest way to do your own real estate deals with retirement funds is to open a self-directed IRA. Currently there are two popular models out there, a Custodian model and a Checkbook model. If you’re going to be swinging deals, making transactions, and perhaps some property rehab here and there, then Checkbook is the way to go. (The Custodian model is more appropriate for one time plops where you give your brother-in-law the money and have no involvement with the property itself. In that case, you may never see your money again, but you also may never see your brother-in-law. Could be a fair trade.)

The way a Checkbook IRA works is like this: first you have to open an IRA with a firm that handles self-direction. Then an LLC is established with you being appointed as the non-compensated manager. (Your self-directed company should take care of this.) Next you open a checking account at your local bank in the name of the LLC,and the IRA funds the LLC.Now comes the good part. To make an investment you just write a check. That’s it. When the property is purchased from that checking account, it automatically becomes part of your retirement plan. Any income from the property (or sale of the property,) becomes the profit of your retirement plan. If you know real estate, then this set-up might actually provide enough money to capitalizing on market growth and expanding your portfolio. 

Before you jump in, just keep two things in mind. The first is a little IRS law known as Prohibited Transactions. In short, you or a close relative can’t get any benefit from the property until you retire. So that means you can’t buy a house and then let your son live there. (As if your love wasn’t enough, right?) The second is financing. If you need to take out a loan to purchase the property, it has to be a non-recourse loan. That’s because you are not allowed to personally guarantee the property to the lending institution. If you’re in it for the money, though, neither of these should make too much of a difference.

Remember, it’s always a good time to start investing. Cheers.

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