Q: Can real estate investments be part of an individual retirement account? We have a real estate mutual fund as part of our IRA, but I am thinking we could do better with purchasing rental property. Is that allowed?

— Lynn Kee

A: IRA law does not prohibit investing in real estate. But IRA trustees are not required to offer real estate as an option because of the administrative burden associated with owning and transferring interests in real estate.

You must find a custodian who is willing to administer your account, and you must have sufficient funds in your IRA to handle the operating costs of the real estate because all of the expenses must flow through the IRA.

So it is possible, and there are custodians available to assist you, but you might find it difficult to establish and maintain. There are numerous Internet-based resources available (I got more than 100 hits) that you can access simply by searching for "IRA" and "real estate" on the Internet.

Q: I was introduced to a company that said I could reduce the total number of payments on my mortgage and save thousands on my home by making biweekly payments. Is there any truth to this, and should I trust this company to arrange such a setup?

— Chris Montgomery

A: Many mortgage companies allow borrowers to prepay their mortgages without penalty. If you received a bonus of $5,000 and wanted to use part of this unexpected benefit to help pay down your mortgage, you could take part of the bonus and use that as an "extra" payment on your loan. This extra payment would be used to buy down the loan amount, and none of it would be considered interest.

Now, instead of a single lump-sum payment, you decide to pay your mortgage loan when you get paid, say every two weeks. The amount you pay every two weeks is one-half of your monthly mortgage payment.

Because you get paid 26 times per year, you will be making the equivalent of 13 monthly payments. Also, because you are making your payment before it is scheduled and many lenders will accrue interest up to the date of your payment, your biweekly payment will be more than enough to pay the interest accrued to that date, so the balance of your payment exceeding the accrued interest will be applied to the loan balance to amortize (reduce) it.

In effect, you are making one more payment per year, and you are paying off the interest more quickly because the loan doesn't have as much time to compound the accrued interest between payments. Some companies will create a payment plan for you to undertake this same situation, and it does pay off the loan more quickly.

Obviously, they do this for a fee, so part of your payment will be a servicing fee to the company. Therefore, the payment you make to them would be higher than what you would pay if you did it yourself.

Tom Hamilton is an associate professor at the Shenehon Center for Real Estate Education at the University of St. Thomas, Minneapolis. He is not an attorney and cannot answer legal questions. E-mail questions to twhamilton@stthomas.edu.

Source: Austin American Statesman