In order to get the most from your self-directed IRA, you’ll want to consider all the different types of investments that are permitted within your account. In fact, the opportunities that come with a self-directed IRA at a custodian such as Quest Trust Company is likely to be what got you interested in this type of retirement account in the first place.
Being able to invest your retirement nest egg in things such as real estate, private equity and precious metals remove the self-imposed limitations of traditional IRA custodians. Within some of the broad investment classes there may be some particular investment types that remain a bit of a mystery. For example, many individuals have gone through the process of buying a home, so they’re likely to feel at least somewhat comfortable with the idea of buying residential real estate for investment purposes with their self-directed IRA. But the process of buying so-called “short sale” properties might be wholly unfamiliar to them.
There is sometimes a temptation to think of real estate foreclosures and short sales as being virtually the same thing. While it’s true that both involve the purchase of properties in which the prior owner was not able to fulfill their mortgage obligations, the processes are actually quite different. Foreclosure is a well-defined legal process that provides certain guaranteed rights to the property owner. On the other hand, you can think of a short sale process as a debt renegotiation.
In a short sale, the property owner (or his or her representative) negotiates with all mortgage lien holders to allow the property to be sold for an amount that is less than the aggregate outstanding loan balances. After a short sale the prior owner will sometimes (but not always) be relieved of any further financial ability.
It’s important to understand that for the creditors on a short sale property to agree to accept less than they are owed, they generally want to make sure the short sale process goes as smoothly and quickly as possible. This means that to maximize your chances of having your short sale offer except, you must present the most attractive offer to those creditors. This generally means that your transaction time frame is flexible – both in terms of being able wait for the creditors to evaluate your offer, and to be able to close on the transaction quickly once it is accepted – as well as being able to pay cash or have no financial contingencies that could prevent you from closing the short sale.
As a result, the process for a distressed homeowner to apply for (and get a decision on) a short sales is generally shorter than for a foreclosure. Still, when you’re looking to invest funds from your self-directed IRA, you need to plan for a longer transaction time frame than if you bought a similar property on the open market.
A real estate agent who’s been through the process before it can provide invaluable assistance if you never purchased a short sale property before.