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Fund Your First Valley Stream Rental Property with a Self-Guided 401(k)

Model House and Cash in a Miniature Shopping CartInvesting in residential rental properties is safe and profitable but finding the funds for a down payment can feel like an overwhelming challenge. However, accessing the funds you need may not be as hard as you imagined. There are some easier ways to get what you need to invest in real estate. You can use your 401(k) plan or an Individual Retirement Account (IRA), if you have them, to fund a rental property purchase in Valley Stream. On top of that, if you plan it well, you can use a retirement account to fund an investment in real estate and have it result in little or no tax implications. By putting the funds you have to use, you can invest in a much more profitable future now.

An IRA or 401(k) is a long-term savings account that can provide some tax advantages, assuming that certain IRS regulations are followed. In certain cases, these retirement savings accounts are self-directed, meaning you can choose how to invest the funds in the account. For instance, you can invest in mutual funds, bonds, and much more by using a self-directed 401(k). Having said that, the law prohibits direct investment into real estate from a 401(k). So, in order to get to your 401(k) funds, you will need to go through a few additional steps.

To use a 401(k) to invest in real estate, you basically have two options. First, to take a loan against your retirement account, or second, transferring the funds in your 401(k) to an IRA account. The challenge when it comes to taking a loan against a 401(k) is the tax burden. That’s because taking out this loan might result in the funds being taxed, and investors would rather avoid that. This is why the better course of action would be to transfer your 401(k) into a self-directed IRA. The transfer itself is typically tax-free. In addition, and unlike a 401(k), many IRA accounts can be used for a wide range of investments, including real estate.

To set up a self-directed IRA, you’ll need to get the services of an IRA custodian such as Equity Trust, Community National Bank, IRA Services Trust Company, or others. The new IRA account can be funded by using an existing IRA or rolling over a 401(k). This is something your IRA custodian should know how to do. Then, when you’ve located your residential rental property and are ready for the purchase, you’ll need to submit a direction of investment form and get it approved. As soon as it’s approved, you can request the funds you need to complete the purchase. To do so, the name of your IRA must appear on the title of the property. This gives the green light your custodian needs to issue funds. You would then be an owner of an investment property through your IRA account holder.

When you use an IRA and because of the peculiarities of the ownership structure, all ongoing expenses and revenue from the rental property would need to go through your IRA custodian account. This means that any proceeds from the eventual sale of your investment property are also included. When you sell a rental home that was purchased with an IRA account, the proceeds from the sale must remain in the IRA account. The benefit of going through this particular process is that these funds aren’t taxed immediately. Instead, the tax liability is deferred to the later use of the funds.

Another thing you need to know when using a self-directed IRA to invest in real estate is that you can’t manage your rental property by yourself. Instead, you would need to hire a professional property management company such as Real Property Management to take charge of the rental’s day-to-day operations. However, this isn’t a limitation; instead, this approach to real estate investing is in line with current business models, where an investment property owner partners with quality professionals to grow their wealth.

There are few investment options that come with the stability and potential that residential real estate has to offer. When you do business with Real Property Management Innovation, we will assist you in your investment activities, and you will rest assured that a comprehensive and professional team of property management experts are working for your best interests. We will handle everything, including the mundane and time-consuming hassles. This will leave you free to grow your investment portfolio into total financial freedom. Contact us or call us at 516-570-9275 for more information.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.