12 Strategies to Build Your Roth IRA With Smaller Real Estate Investments – Part II

By James L. Maxfield, Jr.

This article is a continuation of 12 Strategies to Build Your Roth IRA With Smaller Real Estate Investments – Part I.

Strategy 7: Working with Builders or Developers

Builders and small developers often have extra lots in inventory that probably won’t be built on for several years. IRA investors can approach builders to help them out in several ways. First, you can offer to purchase a lot at a low cash price and lease it back to them at a nominal rent (enough to pay the taxes and to let them keep a “built-to-suit for sale” sign on the lot). Give the builder an option to buy back the lot when he has a buyer for the house to be built on the lot. The buyback price can be adjusted for time to give the IRA investor his desired return (often only 8% to 12% per year) for a safe investment.

The second way to work with builders on excess lot inventories is to purchase a lot at a discounted cash price without a buy-back agreement and then hold the lot until you find a retail buyer for the lot or contract to build a house yourself and then sell the house. The last way to work with some builders is to purchase the lot from them at a cash discount and then joint venture with them to either build a spec house or a built-to-suit house for a buyer. When the house sells, they pay off the appraised value for the lot plus a share of the profit on the home sale goes to the investor. This must be negotiated in advance. It can be 2% to 5% of the total home sale price or it can be 10% to 30% of the net profit on the sale of the house after the market value of the lot is deducted.

Strategy 8: Using Vacant Lots as Down Payments or to Secure Options

If you own a vacant lot that is free and clear in your IRA, the lot can be used as a down payment or as security to control a lease option on a rental home or rehab project. To purchase a rental house for your IRA with a lot owned by your IRA, simply have your broker write an offer to exchange real estate. The balance of the transaction must be made in (boot) cash from your IRA, personal cash, or non-recourse financing.

You can also have your IRA control a rental property by using a free and clear lot owned by your IRA asoption consideration to secure the property. In this case the lot can be applied to purchase price if you complete the option or you can keep the lot if you are just planning to flip the option contract to another party who will renovate the house and hold it as a rental property. It often happens that in these cases, the seller does not want your lot. However, you can often persuade the seller to accept your lot if you are adding cash or financing to solve another problem for the seller; other times if you are making money on the property by reselling it, what’s the harm of buying your lot back with some of the sale proceeds and repeating the process over again? Nothing at all. Do it.

Strategy 9: Using IRA Cash to Joint Venture with a Contractor or Rehab Investor

Joan is a semi-retired widow with a small Roth IRA. She wants a safe investment that will grow quickly. She partners with John, a small contractor and Bill, another cash investor. Bill purchases a foreclosed home and invites Joan to be a limited partner by adding some of the cash from her IRA to complete the repairs on the property. Joan invests $2,500 from her IRA to help finance repairs made by John. The return that each partner earns is a percentage of the profit on the project after it is sold based on their respective investments of cash or labor. On typical small deals of this type, Joan will earn a return of $500 to $3,500 within 90 to 180 days after receiving her $2,500 back. By doing this 3 or 4 times per year, she can earn a nice return on a small, safe investment that will grow her IRA quickly. After the first few such deals, Joan can begin to increase the amount of her investment to $5,000 or more on each project and thus increase her total tax-free profits and return rates.

Strategy 10: Flipping & Financing Mobile Homes

This is a great way to accomplish two things at the same time: make a profit on a transaction and become the lender at a good interest rate. My friend Chuck has been doing this for about 40 years and mostly with IRA money. He has developed close relationships with several local mobile home park owners over the years and whenever they have someone wanting to sell a mobile home, they call Chuck. Chuck pays cash for mobile homes at a wholesale price on the spot (he does not take any that need lots of work). He spends about $500 cleaning them up (or less) and sells them for an average profit of $2,500 per home. Then he carries the financing with a small down payment at 9% to 13% interest for two to five years (note: It is important to develop a relationship with the park owner or manager first and explain what you want to do. Tell them you just like to be the bank for good people living in their park and that the park owner must approve the buyer first as a “tenant” for the lot rent).

Strategy 11: Buying & Leasing Storage Units

This strategy can be used to supply storage sheds to RV and mobile home parks for the lot tenants. My friend Rick has two teenage boys that work on their family mobile home park. The boys each have an IRA set up and put most of their earnings into it. When they had enough money they purchased some wholesale storage sheds and rented them to tenants in their mobile home park. The basic 8 x 10 units cost about $750 to install and have a 15-year life expectancy. The units rent for $20/month. This generates an estimated 32% annual return on investment for their IRAs—tax free.

Strategy 12: Purchasing Tax Liens on Vacant Lots or Land

Purchasing tax liens sounds easy, but you need to work with someone experienced in doing it and someone who knows the market where the properties are located. Not all states or counties sell their tax liens. Some states, like Florida, have markets that have many bidders, so sometimes the stated 18% interest rate on the tax liens can be bid down by widows and retirees who don’t mind a safe investment below an annual return of 12%. It is also said that you should not buy a tax lien unless you would not mind owning the property—because it could happen. Naturally, the tax liens on houses will be much higher than vacant lots. So for your IRA, find areas that have large, seasoned developments with the entire infrastructure in and paid for that still have many hundreds or thousands of vacant lots. There will likely be hundreds of lots that will have unpaid taxes each year that you can by the small liens on them. Most of these will be redeemed at 12% to 18% interest by the owners. But if you end up owning the lot, so what? By now you know what you can do with vacant lots! (Note: Be aware that tax liens for different years may have been sold to other investors. Any lienholder can apply for a deed after the lien redemption period is over. The tax investor who takes possession of the property must pay off the other tax-lien holders to get a clear title).

Disclaimer: Information, ideas, or opinions in this article are not intended as legal or tax advice. Please consult your legal or tax adviser as well as your IRA custodian for specific questions about your intended transactions.

James Maxfield is an real estate exchange broker with over 35 years of experience and the author of an upcoming book that will detail and provide examples of more than 100 creative real estate formulas and exchange transaction strategies. He is also a regional marketing consultant and representative for CAMA Self-Directed IRA. He can be contacted about this article at or If you would like more information about how self-directed IRA plans can be used for developing your personal retirement plan, please contact James Maxfield at 440-229-7454.

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