Use Your IRA To Buy Real Estate In Costa Rica

May 11, 2023 in Tips for Buyers, Buying Process, Real Estate in Costa Rica

Got a bunch of money in your IRA just sitting there, not doing anything? Buy an investment property in Costa Rica.

You came to Costa Rica on holiday and fell in love with the lifestyle. Now you know that you want to come back again and again, and possibly even live here - but you’re not yet ready to retire.  Still, it’s clear to you that this feels like the time to buy and the opportunity feels right. You look at a few homes and find some that you love. You can’t get a loan or a mortgage here, though - so what are your options?

US buyers of Costa Rica real estate are taking advantage of their IRA savings and buying their dream retirement property now and continuing to earn money on this investment plan. Your IRA is a tax-advantaged retirement account that is able to hold investments of your choosing. Why not choose Costa Rica?  It is possible to use funds from an IRA, penalty-free, to buy a house, whether you’ve reached the minimum age or not. Read on to learn how.

Self-Directed IRAs

Converting your existing IRA into a self-directed IRA (SDIRA) is a specialized option that gives you complete control over the investments in your IRA account. This account is administered by a self-directed custodian or trustee, giving you the flexibility to invest in a wider variety of investments, which can include foreign real estate such as in Costa Rica.

In the case of SDIRAs, real estate doesn’t only refer to houses. It can include vacant lots, parking lots, mobile homes, apartments, multifamily buildings and boat slips. What you cannot do is buy a house with your SDIRA and live in it. The SDIRA effectively owns the home and it therefore cannot benefit you or your family (including parents, grandparents, children, spouse and fiduciaries.) You cannot use your personal funds or your time (sweat equity) to benefit the property, either.

You can, however, use your IRA to buy a rental property that will earn you income and be there for you when you are ready to retire.  You can also use your IRA to loan money to someone as a mortgage backed by real estate.

Some Things to Consider

It can be complicated buying real estate in this way, so it is recommended that you work with a qualified tax accountant to ensure that all transactions are done according to current IRA rules. You will have to use SDIRA money to fund any repairs, taxes, or other costs incurred by the property. And any money that the property earns will have to go back into SDIRA account.

Once you turn 59½, you can withdraw your Costa Rica property from you SDIRA. The full value of this property will be taxable income for that year in the United States (unless you pre-pay your taxes through a self-directed Roth IRA). At this point, you can live on the property because it has been “distributed” to you.

Consult with your financial planner, attorney, and/or tax accountant before making the decision to use your IRA to buy property in Costa Rica. But first, contact our office to receive current financial information from one of our many properties for sale with a history of income generation. We can also share what types of properties make for great rentals if you are looking to build on your dream property. We have vast experience in selling income-generating investment properties and can attest to the income earning potential available within our diverse and engaging international communities of South Pacific Costa Rica.

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