IRA buys marina

[Arminius]

I raised the issue of whether one's IRA could buy a marina. The WSJ seems to say one could: Today's issue:

Glenn Ruffenach
April 14, 2022 10:00 am ET

"Given the turmoil in the markets, I’m worried about my IRA. I’m looking for investments other than stocks and bonds that might work for me. What are your thoughts about buying and holding real estate inside an IRA?

PHOTO: WSJ
In short, real estate and IRAs typically don’t mix well.

I’m hearing more questions along these lines. Yes, markets are unsettled, to say the least (the S&P 500 index has been down as much as 13.67% since the start of 2022), and many economists are anticipating tepid returns for the foreseeable future. As such, retirees are asking whether alternative investments, including real estate, might help shore up their nest eggs.

Alternative investments certainly can help diversify a portfolio. But to your specific question: Using IRA funds to invest in real estate tends to be problematic.
To start, you can’t use money inside your IRA to buy property for personal use, such as a primary residence or vacation home. The Internal Revenue Service labels this as a “prohibited transaction.” Translation: The government wants you to use your IRA and its tax advantages to generate retirement savings—not to buy a place at the beach for you and your family.
This doesn’t mean you can’t own property inside an IRA. For instance, you can invest your IRA dollars in a real-estate investment trust, which, in turn, owns or finances real estate that generates income. (Presumably, you wouldn’t be using the properties inside the trust for your personal benefit.) Or you can use your IRA simply to buy an investment property—say, a multifamily home—and manage the investment yourself.

The problem: These approaches can produce any number of tax headaches. A simple example: required minimum distributions from IRAs. Normally, a person who is required to pull funds annually from his nest egg uses the IRS’s life-expectancy tables and calculates the size of the withdrawal. But that process gets tricky quickly with a piece of property. How much is the property worth? (You will need an appraisal each year.)"
The penalty for failing to take the RMD is high. As long as rents are paid, there should be an account to draw on. Factor in the services of an accountant.
Just wondered.

 

[Pirate Lady]

IRA, I thought you meant these guys.....

 

[Carpediem44DB]

I bought Rich Uncles REIT inside of an IRA which recently changed its name to Modiv and went public and is doing remarkably well. I am not sure if they have gotten into the marina acquisition game yet as they generally stick to owning buildings leased to Blue Chip companies with strong balance sheets who pay their bills. We took a hit in 2020 but have recovered grown well since the IPO.
CD

 

[Arminius]

Thanks, I dumped bonds last year as rates had no place to go but up and funding the budget by kiting checks seemed inflationary. Went to stocks as there was no place else to go and the absence of cap gains taxes was highlighted by a big bill resulting from a taxable sale. Scared of Biden/Insley. So I'll look at the REIT although "Rich Uncle" suggests a lack of diversity. Meanwhile, I like dreaming of these bikini girls begging me for an extension on their slip rent. Trailer parks were an investment focus, probably for the same reason.

 

[Stee6043]

Safe Harbor is owned by an REIT - SUI

 

[GypsmJim]

In my area boat dealers on the water all have marinas attached. Mostly they don't deal well in boat sales, so my guess is that the docking fees make them a bundle. OTOH, some have gone out of business because there is no one to take over. The successful ones have 3rd generations running the business.

If you are near or beyond retirement, sounds like a bad idea. You would have to pay someone to run it for you (unless you like to work.....uggggh), and leaving your assets to others often works out bad.

I diversified a few years ago and bought bonds. It has lost money ever since. My son bought AMZN stock and he is swimming in riches.

My main investments have been in Searay and a mountain cabin. The cabin is appreciating, so that's good, but the taxes are high. The Searay depreciates, but she sure looks pretty tied to the dock.

 

[Arminius]

Work is actually not such a bad idea, it's the boss that is debilitating. Bonds will continue to go down as rates go up so you should sell now and lick your wounds. The professional advisors were required to diversify their clients' portfolios into bonds despite the obvious train wreck now occurring. Some, like your son, gamble and win, but the House will always win. Diversify in stocks with risk moderated by cash. Buy your bonds back slowly when we are on the downside of the rates curve. Gamble more in the IRA and take some appreciation occasionally as it is cap gains free and the accumulated risk can be moderated with diversification.

 

[GypsmJim]

After 50 continuous years of working, the only work I do now is polishing my boats. I can honestly say I never had a boss I didn't like or couldn't work with.

My only remaining IRAs are ones that were purchased early in my career. With honest planning my tax rate is now higher than when I put the money in them. I cringe when I have to take an RMD.

 

[sbw1]

Bonds are ok even with rising interest rates if you buy short duration. You are buying yield and hold them to maturity. They provide a reliable source of cash income. What you lose in value will eventually go the other way when interest rates stabilize or start to go down again. Coupled with a good mix of dividend paying stocks, you can generated nice stable cash flow. Stocks will begin to appreciate again from current lows and we will likely see the market up by 4-6 percent at year end.

 

[PlayDate]

The biggest issue with owning a Marina is making it profitable. Sure the land is worth something but the guys I know that buy and manage them say you need "patience money" to buy them. I hadn't heard that term before and basically it means that you don't make money for a while unless you have Service capabilities.

Throwing your entire IRA into that sort of investment and hoping for livable distributions sounds pretty risky.

 

[Soulshine]

I honest to god don’t know how our marina stays in business. Family owned. 100 slips, 1800 a slip. That’s $180k distributed among family members. No mechanical facilities to make money from, zero amenities besides bathrooms to make money from. Minus what has to be ridiculous taxes. No clue how they do it.
Maybe they launder drug money thru it.

Do they do dry storage, decommissioning or shrink wrapping?

No mechanical services or no services at all other than the dock fees?

 

[Mikemapva]

The marina at top is owned by marina at bottom, and acros from the words Hawthorn park is our 4 piers. You can see why they might want to buy it.
View attachment 124835

It looks like the marina on the top has condos behind it. Do the condos come with a slip?

 

[GypsmJim]

We be movin on up....to the west side...

 

[Arminius]

Fidelity is now investing IRAs in cryptocoin! But, only those of its own employees. This clarifies that the investing options available to an IRA holder are defined by its trustee.

 

[Arminius]

Work is actually not such a bad idea, it's the boss that is debilitating. Bonds will continue to go down as rates go up so you should sell now and lick your wounds. The professional advisors were required to diversify their clients' portfolios into bonds despite the obvious train wreck now occurring. Some, like your son, gamble and win, but the House will always win. Diversify in stocks with risk moderated by cash. Buy your bonds back slowly when we are on the downside of the rates curve. Gamble more in the IRA and take some appreciation occasionally as it is cap gains free and the accumulated risk can be moderated with diversification.

You guys are lucky I suggested selling your bonds a year ago. This morning, the NY Times noted:
“There’s an old saying: Whenever the Fed hits the brakes, someone goes through the windshield,” said Michael Feroli, chief economist at J.P. Morgan. “You just never know who it’s going to be.”

 

[sbw1]

You guys are lucky I suggested selling your bonds a year ago. This morning, the NY Times noted:
“There’s an old saying: Whenever the Fed hits the brakes, someone goes through the windshield,” said Michael Feroli, chief economist at J.P. Morgan. “You just never know who it’s going to be.”

JPMorgan still recommends a diversified portfolio of stocks and bonds. Dividends and coupon cash are still flowing and growing.

 

[dtfeld]

The issue of buying a Marina or any real estate inside an IRA is not the buying portion, its the "selling" portion that gets tricky, especially if you need cash now.