It was the trip of a lifetime – you and a parent left Texas for your country of origin, and for two carefree weeks toured the countryside and traced the family tree.

With one eye on part-time retirement and another focused on a less chaotic way of living, you start to dream about what could be possible.

If you think property in Spain, Ireland, or another foreign country is an absolute bargain yet you have no money to purchase a property there, do your research and then consider the funds in your Individual Retirement Account. Perhaps you’ve been seeking an alternative to some lackluster mutual funds that have only been treading water for years. Like foreign stocks, foreign real estate qualifies for an IRA – but you can’t use it yourself until you retire.

Self-directed real estate IRAs are not only relatively easy, they are also not subject to some of the guidelines that apply to employee-sponsored qualified plans enforced by the Department of Labor. The administrator or trustee, as directed by the individual, has complete and total control over the investment. In addition, the administrator or trustee, as account holder, has an obligation of investigating each investment to be considered.

This personal due diligence is a substitute for the rules that govern some employee-sponsored qualified plans. You can invest self-directed IRA money in a wide range of investments, including stocks, bonds, mutual funds, money market funds, saving certificates, U.S. Treasury securities, promissory notes secured by mortgages or deeds of trust, limited partnerships and … real estate. This includes single-family homes, timber parcels, gorgeous getaway condos, and office properties.

To prepare for your real estate IRA, designate the amount of your retirement funds that you wish to use in the property deal and open a new IRA account with an independent administrator.

One place to start for an international purchase is PENSCO Trust Company (450 Sansome St., 14th Floor, San Francisco, Calif., 94111; 866/818-4472; www.pensco.com) because it is one of a very few companies handling “offshore” self-directed real estate IRAs. If you have an existing IRA you can transfer all funds, without penalty, to another administrator at any time.

Tom Anderson, president and CEO of PENSCO Trust Company, says his company has made self-directed real estate IRA purchases for years to customers who have just returned from a dreamy getaway.

“Some of the usual areas of Italy and France have always been popular along with a variety of spots in Mexico,’’ Anderson says. “We are now getting more exotic requests … for example remote islands in the Caribbean and elsewhere.’’  

The guidelines covering real estate IRAs are stringent. If you break one of these rules, you could jeopardize the tax-free status on your account.

• The land or house must be treated like any other investment.
• All rental profits must be returned to the trustee.
• You cannot manage the property. But your trustee can hire a third party – a real estate broker, or local manager – to collect rents and maintain or improve the property.
• The house or property (or proceeds from its sale) must remain in the trust until distribution at retirement. If a trustee is instructed to sell the property, funds can be transferred to another account for reinvestment.

You cannot use IRA money to buy your own residence or any other property in which you live. It has to be investment property. But when you retire, you can direct your IRA to turn it over to you as a distribution at the current market value.

For example, let’s suppose your best friend from college has pestered you for more than a decade about the financial advantages of investing in real estate in northern Italy. This person, Lucky Luigi, has struck gold with recreational properties in a variety of locations and has renters clamoring to rent his units every month. Occupancy has been so good that Lucky Luigi could have rented his places during the winter months “three times over’’ and now doesn’t want to give up the rent money by using the units himself. Luigi has evolved from user to user/investor to investor only.

Luigi appears at the college reunion and he shares with you a lead on the next undiscovered European paradise that baby boomers will fall over themselves trying to reach. According to Luigi, not only will the place be worth a ton down the road, but it also will produce an immediate annual cash flow because of the premiums renters will be more than willing to pay for the winter months.

However, like Lucky Luigi, you would have to be an investor only, but the move would give you the opportunity of gathering appreciation and equity with the only funds you have available. When you retire, the property will be deeded from the IRA to you. You will then pay tax on the property as a “distribution in kind.’’

If you discover a foreign property that is extremely desirable, take time to do the research before you pass on the deal. If you firmly believe offshore parcels hold a greater upside than options closer to home, you could have a way funding the deal.