I’m Planning to Buy Thai Property With My IRA (Yes, You Can)

Koh Samui Property
A self-directed IRA is a smart way to invest in overseas property like Koh Samui.|©iStock/tawatchaiprakobkit

The turn arrived unexpectedly. Nothing more than a nearly hidden side street jutting off the main drag through Lamai Beach, which could be pretty much any other beach town along the eastern shore of Koh Samui, one of the most popular of Thailand’s more than 1,400 islands. But I was specifically interested in this beach town…

My wife and I had come to Samui for two months of Thai living, and on the day the turn arrived unexpectedly, we were out exploring. For houses.

A few days earlier, I’d been on a ferry between the island and the mainland, and got to chatting with an Aussie who’s been living on Samui for seven years. He told me that Thai and Samui government officials finally seem serious about a long-rumored plan to build a 25-kilometer highway across the sea—a journey that would reduce travel times between island and mainland to 40 minutes rather than two hours by ferry.

The only other option is a relatively expensive flight on Bangkok Airways, the only airline allowed to serve Samui, and those flights arrive from only five domestic cities across the country. But a bridge?

Well, that would open up the island to vastly more tourism, particularly in the underdeveloped southern half, where the bridge would terminate and which now is primarily jungle, as opposed to the overdeveloped north of the island, which is primarily asphalt and neon.

All of which is why I was looking for this turn.

I wanted to see what housing options look like just outside of Lamai Beach, the biggest town nearest to the southern end of Samui. Owning rental property in this area might just be a great investment inside my self-directed IRA.

Because when the bridge arrives—seabed tests for pylon placement began this February to find the best route—southern Samui is going to boom, just as the northern end did with the arrival of the airport in 1989. New homes and subdivisions will pop up everywhere. Demand for Airbnb rentals will soar.

And the value of houses bought early on will fly higher as tourism arrives en masse in the south. To my investor mind, that sounds compelling.

Property Options in Koh Samui

"No one is paying attention to the opportunity in southern Koh Samui."
"No one is paying attention to the opportunity in southern Koh Samui."|©iStock/maroznc

What I can tell you is that the turn led us up into the jungle-shrouded hills above Lamai, and through new-home developments that range between adequate and stunning…

Imagine an infinity plunge-pool, on a hill, jungle foliage all around, overlooking the beautiful Gulf of Thailand in the distance.

We stopped in on a house nearing completion, and the workers shrugged and let us explore the place. Three bedrooms, three baths, gourmet kitchen, huge family room with soaring ceilings, probably 2,200 square feet. Amazing, tropical views. A deck and pool and fittings for an outdoor kitchen.

All for the equivalent of about $225,000.

I’ve long thought about holding foreign real estate in my self-directed IRA. I want that exposure to a very different asset class, because it balances out the stocks, gold, and Swiss francs that now comprise the account. And it diversifies some of my wealth away from the US dollar and into an asset that could generate continual annual yields of 10% or more. That doesn’t take into account property price uplifts over the years.

But I’ve not yet found the place that really sings to me.

I’ve seen some exceptionally nice properties along Mexico’s Riviera Maya, in parts of northern Portugal, along Spain’s Mediterranean coast, and most recently in Kotor Bay, Montenegro. But those are all well-known destinations, meaning prices aren’t exactly cheap. The one exception is Kotor, but my issue there is that it is not a year-round vacation spot. The place shutters up between late fall and early spring.

Samui, however, is go-go all year long because of its sandy beaches and warm and calm tropical waters about 650 miles north of the equator.

Moreover, there’s the bridge, which to me is the most important factor.

As my colleague Ronan McMahon says over at RETA, this is a "Path of Progress" event. A bridge linking Samui and the mainland is an absolute game-changer for the southern end of the island—no different than the new highway that opened years ago between Playa del Carmen and Tulum.

Until that moment, Tulum was a low-rent jungle hangout for backpackers, and today it’s one of the most boho-chic tourist hot-spots in all of Mexico—a reality reflected in booming real estate prices.

But southern Koh Samui?

No one is paying attention yet… except a few local expats who see the opportunity taking shape.

How a Self-Directed IRA Works

Not everyone thinks to own real estate in an IRA—much less foreign real estate—though it’s certainly possible with a so-called self-directed IRA that allows savers to own a slew of alternative assets. Depending on the IRA, that can include private-equity investments, precious metals, bitcoin/crypto, commodities, tax-lien certificates… and real estate, including foreign real estate.

The process, however, is not as simple as opening an IRA at, say, Fidelity or Charles Schwab.

First, a limited number of IRA custodians offer the kind of self-directed IRA you need for foreign property ownership. That’s key, because despite the wealth in your IRA, a custodian must approve every single investment (there’s a way around this; I’ll explain in a moment).

Second, IRS rules forbid IRA owners or family members from actually using the home, even if they pay market rental rates. So this is purely a strategy for investment purposes only (you could distribute the property to yourself in retirement, just like you would distribute income to live on, but that would likely have a large impact on your tax bill).

Moreover, you’ll need an IRA—traditional, SEP, or Roth—that already has substantial assets of at least several hundred thousand dollars. Otherwise, this isn’t a viable strategy because you can’t deposit enough money into the IRA in any given year to afford the property. (If you have accumulated multiple IRAs over the years, as I have, you could roll them up into a single, self-directed IRA.)

You’ll also want excess cash in your IRA beyond the property’s purchase price to afford unexpected expenses that might pop up, like storm damage or whatnot. If your IRA doesn’t have access to enough available cash, and the cost exceeds your contribution limit, you’ll face real challenges.

What I’m looking at specifically is something called a "checkbook" IRA—a self-directed IRA that gives you checkbook control over the assets. These checkbook IRAs typically include setting up a domestic LLC, which the IRA owns. The custodian you choose then elects you to manage the LLC. The big benefit here: You make investments on behalf of your IRA without needing custodial approval for every transaction.

Moreover, many countries don’t recognize American IRAs as legal entities, giving rise potentially to property titling problems. A checkbook IRA largely avoids this because countries generally recognize a US LLC as a corporate entity.

However it’s ultimately structured, the checkbook/IRA LLC becomes a convenient way to pay expenses like property taxes, insurance premiums, marketing/management costs, or repairs without needing custodial approval.

The Tricky Part

Now, I’ve made it sound like owning foreign real estate in a self-directed IRA is all gumdrops and sunshine. It’s certainly not, as I learned from Brandon Roe, senior associate at Nestmann Group in Phoenix, which specializes in helping Americans invest overseas both inside and outside of retirement accounts (and has worked with numerous International Living readers over the years.)

As I noted earlier, you cannot buy a property to use as your primary home, a vacation home, or to rent to family members, even if they pay market rates. If the IRS finds out about that, you face taxation on the full value of your IRA at a rate as high as 37%. And if you’re under 59 1/2 years old, the IRS tacks on an additional 10% fine.

You also have to consider local landownership issues. Thailand, for instance, generally doesn’t allow foreigners to own land, though they can own 30-year leasehold agreements that are renewable for another 30 years. In Mexico, foreigners cannot own property within 50 kilometers of a beach, though a Mexican corporate entity, for which a checkbook IRA is the beneficiary, can.

There are mortgage matters to consider too. An IRA can take on a mortgage to afford a property, and many local banks will allow foreigners to pursue a mortgage secured by local property. But a mortgage opens up another issue inside an IRA tied to something called UBIT, or Unrelated Business Income Tax. I’ll avoid those weeds here, just know that UBIT is a tax that an IRA faces when a mortgage is involved.

And you could have too little liquidity in your IRA later in life when forced minimum distributions start. That would create a new headache since you might be forced to sell the property to meet distribution requirements—which then has other tax implications.

Still, despite those downsides, I see real benefit from putting some of the money in my largest IRA to work in foreign real estate. And I particularly see the benefit of doing so in what I think is a "Path of Progress" destination, like southern Koh Samui.

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