Wary of Stocks? Property Is an I.R.A. Option
Vivian Marino
Like many other investors, Ray Matteson, an executive at a
data-processing company, was caught in the dot-com maelstrom of the late
1990's, except that his losses were on a far grander scale than
most - about $3 million by his calculations and all of it in a
retirement account. But Mr. Matteson, 60, who had amassed a
fortune through an employee stock ownership plan, says he has
managed to recoup most of those losses.
About two years ago, he shifted his money from a traditional
individual retirement account into a so-called real estate
I.R.A., and he used money in the account to buy a
105,000-square-foot warehouse in his hometown, Sacramento. "I
paid $4.3 million for it last year, and if I sold the building
today, I could probably get around $5 million to $6 million,"
said Mr. Matteson, adding that he also receives a steady stream
of income from his 12 commercial tenants, producing a 9 percent
annual return.
While a vast majority of the 45 million households with I.R.A.'s
are still in stocks and bonds, more investors are focusing on
real estate, hoping to cash in on the robust market. An
estimated 2 percent of I.R.A. money is now invested
in real estate in one form or another - through self-directed
accounts held by a custodian and managed by the accountholder -
twice the percentage of two years ago, according to industry
experts.
Real estate has always been permitted in I.R.A.'s, but few
people seemed to know about this option - or even care - until
the stock market began to decline. Financial institutions,
meanwhile, had little incentive to recommend something other
than stocks, bonds or mutual funds.
There are few restrictions on what investors can hold in these
self-directed accounts. Qualifying properties include apartment
and office buildings, shopping centers and warehouses as well as
single-family houses. Investors cannot use commercial space
owned through their I.R.A.'s for their own businesses.
Most real estate I.R.A.'s now are in residential property,
according to account administrators, but they say they are
seeing more and more commercial deals. Typically, these involve
high-net-worth clients with substantial assets in their
retirement accounts.
"People are looking for ways to accelerate their asset values,
and they're not getting those returns in the stock market," said
Hubert Bromma, chief executive of Entrust Administration, a
company in Oakland, CA, that specializes in the
administration of I.R.A.'s for nontraditional investments. The
company has $1.5 billion in assets under management; two-thirds
is in real estate.
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